Brazil’s Temer to battle fiscal crisis without tax hikes

BRASILIA,  (Reuters) – A new government in Brazil led by Vice President Michel Temer would focus on cutting spending to close a gaping budget deficit and would only raise taxes as a last resort, the leader of his Brazilian Democratic Movement Party (PMDB) said yesterday.

Michel Temer
Michel Temer

Senator Romero Juca said that Temer, who would replace President Dilma Rousseff if she is put on trial by the Senate in mid-May as expected, would prioritize reform of Brazil’s overextended pension system, one of the main drains on government coffers.

Brazil spends 13 percent of its gross domestic product on a generous pension system – more than all of the G7 developed economies, except Italy.

Juca, an economist who is being considered for the post of planning minister, said a Temer government would move quickly to recover credibility in policymaking and reduce state intervention in the economy.

To rapidly revive confidence in Latin America’s largest economy, Juca said the next administration has to review what he called “unsustainable” public spending and could even discuss setting limits to government debt.

“Raising taxes is not the first option,” he told a meeting with the international media. “In a recession, raising taxes does not increase revenues.”

Juca said a Temer administration would eliminate some of Brazil’s 31 ministries to pare back administrative costs but he declined to provide further details of how it would reduce expenditures.

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