The Primary Fiscal Target for 2017: A Step Ahead

BRAZIL ECONOMICS - Report 11 Jul 2016 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

The announcement of the primary deficit target of R$ 139 billion for next year brought more criticism than praise. After all, even if it is accomplished, the primary deficit will still be very high (2% of GDP), frustrating the expectations of all those who would like to see stronger action by the government. However, this criticism loses force when recalling that given the magnitude of the problem, the government’s task can only be executed over several years, and that a start has been made on a set of reforms intended to radically change the structural growth of spending. But it is also clear that the result for 2017 will not be obtained just by cutting expenditures. It will also rely on extraordinary revenues, strengthening the diagnosis that without complementing it with ​an increase in the tax burden, the debt/GDP ratio will not start declining, even with approval of constitutional amendments to cap nominal spending growth and to reform the social security system.

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