August 8, 2017 / 10:41 PM / a year ago

Brazil's Temer to study revision of fiscal target -source

BRASILIA, Aug 8 (Reuters) - President Michel Temer will meet on Wednesday with his economic team to study a possible revision of Brazil’s fiscal target for this year due to the lower-than-expected tax revenues, a government official with knowledge of the matter told Reuters.

The source, who was not authorized to speak publicly on the matter, said Temer would meet in the afternoon with the ministers of finance, Henrique Meirelles, planning Dyogo Oliveira and infrastructure investment, Moreira Franco.

The government has budgeted a deficit of 139 billion reais for this year. But the slow economic recovery has meant lower tax revenue while political uncertainty has delayed projects that the economic team had counted on.

The political members of Temer’s cabinet have argued in favor of raising the budget deficit to around 159 billion reais, the same deficit reported last year. With an election year in 2018, they are anxious to boost the economy and end the recession.

So far Temer has raised fuel taxes, frozen spending and stepped up asset sales to avoid changing the target, which investors could read as a sign of weak fiscal discipline.

His government faces growing skepticism about its ability to meet its annual budget target. The so-called primary deficit in the 12 months through June rose to 167.2 billion reais, equivalent to 2.62 percent of gross domestic product and well above the official target.

Temer’s main plan to balance the budget in the long term is to reform Brazil’s costly pension system, the biggest expense causing the fiscal crisis. But his proposed pension overhaul has been delayed by political instability fueled by corruption allegations against the president.

The government is expected to proposed a watered down pension reform that is more likely to pass Congress but may not plug the budget hole.

On Tuesday evening, the government issued a statement saying it had no plans to propose an income tax increase to Congress. Earlier in the day, Temer said in Sao Paolo that his government was looking at raising income taxes, but the studies were preliminary and no decision had been made. (Reporting by Ricardo Brito; Writing by Anthony Boadle; Editing by David Gregorio)

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