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 This is the first time an official has publicly acknowledged that
the government could reduce its 2014 primary budget surplus target
of 99 billion reais ($42.5 billion), or 1.9 percent of gross
domestic product. Markets have widely expected such a move.
When asked if the government had ruled out adjusting its primary
surplus target, Augustin said "I cannot give you my opinion because
the government is discussing the subject and when it reaches a
decision it will be released in a document."
Asked if the government was changing its stance and thus could alter
the target, he said: "Evidently, if revenues came below what we
expected, that means that we need to reassess... we need to do
something."
A few hours after the interview, the Treasury issued a statement
saying that Augustin’s remarks had been misinterpreted and that he
could not give an opinion on whether to change the fiscal target
before the upcoming release of a government report on revenues and
expenditures on Sept. 22
Most market economists are convinced that President Dilma Rousseff
will again fail to meet the fiscal target as a contracting economy
slows tax collection while public spending picks up ahead of
October's presidential election.
The primary budget surplus represents the public sector's excess
revenue over expenditures before debt payments. In the first seven
months of 2014, the government has been able to meet just 25 percent
of its primary surplus target for the whole year.
The shrinking primary surplus has become a hot topic in the
presidential race. The main opposition candidates have accused
Rousseff of relaxing fiscal discipline, which over the past decade
brought stability to an economy once plagued by crises.
Many analysts blame Augustin, a friend and close adviser of
Rousseff, for a string of accounting tricks in recent years that
have hurt the government's fiscal credibility.
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In March, Standard & Poor's cut Brazil's debt rating closer to junk
status, partly because of the country's deteriorating finances.
Another ratings agency, Moody's Investors Service, threatened to do
the same on Tuesday.
After missing the primary surplus goal for two straight years,
Rousseff now says that if elected, her government would lower
spending next year to regain investors' trust.
Augustin said it is normal for a government to adjust its finances
at the start of another administration but declined to give more
details, saying the plan was outlined in the 2015 budget bill.
An expected drop in payouts to struggling energy distributors and
producers in the drought-hit northeast would help bolster savings in
2015, Augustin said. He added that tax revenues are also likely to
improve as the economy picks up.
"I don't believe that there are facts that could lead someone to
believe that what we went through in the first half of the year is a
trend," Augustin said. "We expect an economic recovery, which is
linked to fiscal results."
(Writing by Alonso Soto; Editing by Meredith Mazzilli, Jonathan
Oatis and Bernard Orr)
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