Transparency in Meeting the Primary Deficit Target

BRAZIL ECONOMICS - Report 27 Mar 2017 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

With the economy still in recession, it will not be easy to cut spending and increase taxes. But both of these actions will be necessary in 2017 to meet the primary deficit target. The lower projection for GDP growth and the frustrating results of some non-recurring revenues have reduced the expected revenues, so to meet the primary deficit target the government has announced the need for a R$ 58 billion adjustment in relation to the budget forecast. The finance and planning ministers have expressly recognized that meeting the deficit target in 2017 will require a tax increase, and in our view this will not be restricted to 2017 alone, and should occur in the coming years to put public debt into a sustainable trajectory, even with strict observance of the spending cap.

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