BRASILIA (Reuters) - Brazil needs a temporary tax increase to reduce a budget deficit that threatens the country’s debt rating, the presidential chief of staff said in an interview published on Sunday.
Aloizio Mercadante did not say which taxes would need to be raised, but told Folha de S. Paulo that a tax increase could help speed up an economic recovery in the longer term.
“We need to raise taxes temporarily so we can, for example, open room for interest rates to drop faster,” Mercadante said in the interview conducted on Thursday.
A tax hike would help the government avoid the 30.5 billion reais ($7.9 billion) deficit penciled in next year’s budget bill. Other measures should include passing bills to reduce earmarked expenditures and simplify sales taxes, Mercadante said.
The government has been discussing alternative sources of revenue to avoid a budget deficit next year, President Dilma Rousseff said in a radio interview broadcast on Friday.
Failure to run a budget surplus could convince ratings agencies to strip Brazil of its investment-grade rating, worsening the political and economic crisis. Brazil is headed to its worst recession in 25 years this year, with economic growth expected to return only in 2017.
Mercadante, a senior member of the Workers’ Party and within Rousseff’s inner circle, is under investigation for allegedly receiving illegal campaign donations linked to a corruption scandal at state-run oil company Petrobras (PETR4.SA).
Reporting by Silvio Cascione; Editing by Robin Pomeroy