Meirelles sees lower growth and doesn’t rule out tax hikes

In a scenario in which the economy’s recovery may be more modest than expected, raising taxes to settle the government accounts is back in the agenda. On June 28, during engagements with the financial sector in São Paulo, Finance Minister Henrique Meirelles admitted that the economic team would revise downwards the current forecast of economic growth in 2017, now at 0.5%. A little before, the minister had said the government had not taken decision on hiking the Cide tax on fuels. He stressed, however, that he had never denied the possibility of raising taxes to settle accounts.

“For now, there is no decision yet on increasing the Cide,” Mr. Meirelles said after attending a Citibank event in São Paulo. “We have always said we would raise taxes if necessary and I repeat that now in a more pertinent way.”

A Cide hike, measure always recalled at the moment of increasing revenues, gained attention again because of the government’s budget difficulties, which demand extra revenues for compliance with this year’s fiscal target, of R$139 billion. Although the economic team considers raising the tax burden, Mr. Meirelles also said that tax collection should recover and “even surprise positively, especially from the second half.”

Mr. Meirelles said that at some moment tax receipts are likely to recover and “even surprise positively.” He pointed out that the government expected the passage of the bill that clears a little more than R$8 billion in court-ordered payments whose recipients have not withdrawn the money, and that there were other important measures to raise revenues. The minister expects a recovery in tax receipts particularly in the second half.

He once again said that the pension reform is a long-term measure and that the delay of a few months in its passage “will not define the long-term fiscal situation,” but that the reform can’t wait years to be done.

About the downward revision in the official growth projection for this year, the minister declined to provide a figure, but advanced that the current forecast of 0.5% will be recalculated. “It will be a little lower than that, but will certainly be positive, it will be in that range between 0% and 0.5%. We will announce it in the next few weeks,” he said.

Mr. Meirelles argued that he would prefer working with the comparison of economic growth between the last quarter of this year and the last quarter of 2016, whose projection of the Finance Ministry was around 2.7%. The minister also said that this figure would be revised downwards. “We still maintain a projection of growth above 2% in the last quarter of this year from the last quarter of 2016. We’ve come up at a certain point with 2.7%, didn’t change that projection formally, but in fact it has a certain downward bias, but it is not something that will be below 2%, it will be higher. Anything between 2% and 2.7% is what we are evaluating,” he added.

When commenting the economy’s numbers, the minister made the point of associating them with positive data, which he classified as recovery of growth. “There are crucial points for the economic stimulus: the labor market began improving, unemployment stopped rising in the sense that there has already been positive creation. Even though it is not a strong number, it shows some recovery. There is also inflation falling without prospect of reversal, allowing the monetary authority to give more stimulus to the economy. Therefore, there is a series of economic factors that support the trajectory of growth we expect, but with some adjustment.”

Despite acknowledging that the political crisis hinders the progress of economic reforms proposed by the economic team, Mr. Meirelles said he will continue in the government. “I don’t think of leaving the government, I am focused on my work. My agenda is economic, it is not a political agenda, I do exactly the part of a technical team, with economic focus and that has total freedom to work. We are proceeding with our work normally. The economy is doing well, showing results, from the point of view of economic activity,” he said.

Regarding the current political scenario, the minister argued that the market is more focused on the medium term. “Investors see a consensus situation that the reforms are crucial and that this economic program is the most adequate, but increasingly they begin looking to the electoral matter of 2018. [They wonder] How will the government be in 2019? What will be the prospects? This begins to influence market signals,” Mr. Meirelles said, once again denying he has interest in running for president next year.

Source: Valor Econômico