No ceiling for spending, country will have high tax, says Finance Minister

The minister made the statement in an interview with Folha de S.Paulo.
25/07/2016 07h43 - Updated 25/07/2016 15h27
Photo: reproduction

The Minister of Finance, Henrique Meirelles, told Folha that, if Congress does not approve the proposal to establish a ceiling for public spending, the country will have chosen a troubling choice and will have a price to pay, translated by him as new tax increase rounds and higher interest rates for longer period, that will drag down growth.

“Brazil will have made a choice that I find wrong, grave, not control the evolution of government debt, and pay a price for it in coming years”, he said, to defend the approval of the constitutional amendment that limits the growth of public spending to the correction of inflation in the previous year.

“If not approved, there will be no output, because in the coming years, to fund this increase in public spending, there will be only increase tax”, said.
Meirelles also stated to be against a new refinancing program of corporate debt with tax authorities, to say that “trying to meet all is leading to the deterioration of the fiscal situation and loss of all”.

The minister said that he will fulfill the goal of closing the year with a deficit of R $ 170,5 billion, despite the high costs and falling revenues that led the government to revise projections last week. “Who lives will see”, said.

Central Bank president in the government of former President Luiz Inacio Lula da Silva, Meirelles declined to comment on the impeachment of President Dilma Rousseff, but said that the end of “uncertainty” he feeds will allow “bigger and faster recovery” the economy.

To follow, excerpts, granted in the afternoon Thursday (21) in his office, in Brasilia.

leaf – As or sr. see the criticism that the government is in the right direction, but lacking more effective adjustment measures?

Henrique Meirelles

It is important to make clear that the fiscal problem in Brazil is structural, which is even based on the Constitution itself. Attempts in recent years to control spending based only on discretionary spending have a very small margin. You can not reduce pension expenditure by administrative decision, can not reduce investments in education and health. And you can not reduce wages, It is prohibited by the Constitution. Structural changes are needed. It was what we set. It is the first structural change in the issue of public spending in Brazil since the Constitution 1988.

Although high, the deficit can still be greater?

A goal of R $ 170,5 billion will be fulfilled. Anxiety does not solve structural problems. The attempt to short-term specific changes had negative results in the past. Public spending in Brazil grew 6% above inflation 1997 up until 2015.

The government burned reserves of R $ 16,5 billion now to adjust their accounts to the frustration of revenues and spending increases. That does not worry?

It was left a reserve of R $ 18 billion for this. Trust is now increasing and is expected to stabilize revenue. Compulsory expenditure will be envisaged when it approved the ceiling of public expenditure. We will meet the goal. If you need, adopt measures in the field of revenue and expenditure.

There are those who doubt the goal of compliance.

Who lives will see. There is no doubt that R $ 170,5 billion is a very high deficit, but it was built for many years. What has happened now is that it was explained. Our commitment is to tell the truth and advertising goals that are met.

The repatriation of illegal funds from abroad will be changed?

The funds will begin to come when people realize that there will be no rule change. In my view, it is unnecessary to change.

If the ceiling of expenditure is not approved, what the government will do?

So, Brazil will have made an option, I think wrong, grave, not control the evolution of government debt and will pay a price for it in coming years, it is a matter of increasing the structural interest rate, back to increase the country risk etc..

If the ceiling is not approved by Congress, the country does not escape tax increase?

Sim. If not approved the ceiling of expenditure of expenditure on health and education, there will be no output, because in the coming years, to fund this increase in public spending, can only increase tax. Without this approval and later the Social Security reform, we will certainly have a continued increase in compulsory public spending and we again have risk premium increase.

To close the accounts of 2017, there is talk of high tax?

We will have a clear view until the end of August [when formulating the next year's budget]. Our expectation is that there is no need tax increase. I have stressed that it is not the ideal solution, but, if necessary, will increase tax, sim, because goal of R $ 139 billion deficit will be fulfilled, sim.

The payroll tax exemption will end?

The reoneração this time is negative, because the country has more than ten million unemployed. And the great challenge is to create employment. do not discount, no future, with the economy in full swing, this may or may not occur.

After the United, entrepreneurs also claim renegotiation of their debts to the tax authorities, with the approval of a new Refills. It's possible?

The priority today is to control the fiscal deficit. It is normal that every segment of society seek their immediate interest. But the attempt to meet all is leading to the deterioration of the fiscal situation and the loss of all, in that the country has one of the recessions.

Is or interim president, Michel Temer, confirmed for no charge, foreigners will invest more in Brazil?

I will not go into political issue, but there is no doubt that, eliminating the uncertainty, there will be greater and faster recovery. regardless of this, confidence is already growing.

And if President Dilma back?

I will not go this merit. We're talking about chances. Just analyze what happened in recent years and what is happening now.

Or sr. You think growth could surprise?

You may surprise positively. There is already a growth bias forecasts. Some analysts already speak around 2%, but clearly there is a bias, which will be consolidated, a higher growth than consensus. Been to 0,5%, it's at 1,2% and may, in my opinion, grow up.

President Temer returned to ask stimulus measures of the economy. What will?

We do not have a project. The challenge in the first weeks and months is to address the tax issue. Not exactly provide specific incentives, because it proved ineffective in the recent past. What we will do is increase productivity, the ease of doing business. We have the ambition to grow back well over 2%, estimated as potential growth, that is sustainable, without generating inflationary pressure. We believe that 2017 e 2018 the country can grow above potential for large idle capacity that exists in the economy.

Something more study to be privatized?

We are evaluating several possibilities, many already mentioned, others have not. Additional airports. [Congonhas and Santos Dumont] is a decision of the sectors directly involved, but personally I am in favor that privatization is done. Not only them, but the other airports of high traffic volume.

When resources come?

The figures are estimated and should be clearer from September. It is natural to expect investors, that resolves the political equation before committing. Our forecasts incorporate privatization receipts, awards and grants from 2017.

President Dilma said, turn, maintain the economic team. Or sr. continue?

No comment hypotheses.

Source: Folha de S.Paulo

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