Reiteration of the Commitment to the Fiscal Target

BRAZIL ECONOMICS - Report 24 Jul 2017 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

Despite the continuing signs of the government’s political weakness and pressures for more spending that boosts congressional support for the president, the economic team reacted by sending encouraging signals about their commitment to the fiscal target. The announcement of an additional budget contingency shows that tax increase measures are not being used as a substitute for austerity measures on the spending side, but rather as an inevitable action to comply with the primary result. A relaxation of the primary deficit target would have negative consequences on the debt dynamic in the coming years. The main worry about higher taxes would normally be inflation, but under the present circumstances, of a steep decline of inflation, this does not prevent continuity of the monetary easing.

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