BRASILIA, March 29 (Reuters) - Brazil will scrap payroll tax breaks on dozens of industries and freeze about 30 billion reais in spending in a bid to reach a fiscal deficit target key to regaining the country’s investment grade rating, three government officials said on Wednesday.
Under pressure by his allies in Congress and business groups to adopt pro-growth reforms that could snap the economy out of a deep recession, President Michel Temer has opted to keep tax hikes to a minimum.
Lawmakers, however, have warned the elimination of the payroll tax breaks, which costs the government about 18 billion reais a year, will face resistance.
Finance Minister Henrique Meirelles is also expected to announce later on Wednesday a smaller increase in the financial transaction tax, known as IOF, on cooperative credit as well as updated estimates on extraordinary revenues.
“The idea was to limit tax hikes. It was the best option given the difficulties we faced,” a close aide to Temer told Reuters on condition of anonymity because the decision has not been made public yet.
“Congress will have to either approve the rollback or we will have to raise other taxes, which can have a negative impact on inflation.”
Two other sources, who also asked not to be named, confirmed the size of the spending freeze, which is key for the government to meet its primary budget deficit goal of 139 billion reais ($44.36 billion).
The finance ministry’s press office declined to comment.
$1 = 3.1334 reais Reporting by Alonso Soto; Editing by Paul Simao