Gov't slashes $18.8 billion in budget to meet fiscal target

The Brazilian government is set to cut $18.8 billion in its Federal Budget to meet the country's fiscal target for 2017, the Ministry of Planning, Development, and Management declared Wednesday (Mar. 22). The move is believed by authorities to be necessary following the lowering of the forecast for the economy in 2017.

The measure is a temporary one, said Finance Minister Henrique Meirelles in an interview. The definitive value of the reduction will be announced Tuesday (28), he added, along with tax hikes and court decisions which may decrease the amount to be slashed.

According to Meirelles, a preliminary injunction issued Wednesday by Supreme Court Justice Dias Toffoli on the return of a power plant to the federal government is expected to raise $1.3 billion, and the government should auction the plant this year. The Supreme Court, the minister went on to say, is also expected to decide on the return of two other plants to the government, which should total $2.1 billion in revenue.

The slash in the budget will serve to meet the fiscal target set by the Budget Directives Law (LDO in the original acronym) at $44.9 billion for the primary deficit. No tax hikes have been announced by the government thus far.

The figures were given their definitive values Wednesday during a meeting attended by Finance Minister Henrique Meirelles, Planning Minister Dyogo Oliveira, and President Michel Temer. On the day before (21), Meirelles had announced that the government was finishing its estimates on the revenues of the oil and gas auctions and the program of asset repatriation before it could decide on the exact amount to be cut and the tax hikes.

Originally, the Federal Budget estimated that the country's GDP would increase 1.6% in 2017. Due to the lower-than-expected performance of the economy, however, the government reduced its forecast to 0.5%.

In a note, the Planning Ministry explained that the new estimate for the GDP, lower than its predecessor, as well as the reassessment of the funds raised through concessions and sales of assets, led to a $17.7 billion cut in predicted revenues. Also, the government had to raise by $1.09 billion its projections for mandatory spending, on account of new forecasts for the benefits under the Organic Law of the Welfare System, extraordinary credit, development funds, subsidies, transfers, and fines imposed by National Electric Energy Agency (ANEEL).

The sum of the two values—the reduction in revenues, and the increase in mandatory expenditures—caused the government to cut $18.8 billion in non-mandatory expenditures. How the slashes will be handed out to each ministry should be announced in a week.

The lower expansion in the economy impacts federal revenues and pulling the government's income down below what had originally been forecast. The economic staff rose the taxes and cut funds to compensate for the performance of tax collection and meet the target for the primary deficit—the negative result in the government's accounts, the payment of interests in the public debt not considered—as set forth by the Budget Directives Law.

Translated by Fabrício Ferreira