MercoPress. South Atlantic News Agency

Brazil's budget during May back in the red; Congress restless about austerity

A drop in tax revenues caused by a sharp economic contraction is complicating minister Levy's efforts to shore up the country's finances

Brazil reported a primary budget deficit for May that was its widest for 2015, making its annual savings goal more difficult to achieve despite government efforts to raise taxes and cut spending. Central bank data showed a primary budget deficit of 6.9 billion Reais ($2.23 billion). This compared with a primary surplus of 13.445 billion Reais in April.

 The primary balance, or what the government saves prior to interest payments, is an important gauge of its ability to repay its obligations and helps business atmosphere.

Brazil has accumulated a primary surplus of 25.5 billion Reais in the first five months of the year, just over a third of the overall goal for the year. The government's goal is to save 66.3 billion Reais in 2015, or the equivalent of 1.1% of GDP.

But a drop in tax revenues caused by a sharp economic contraction is complicating Finance Minister Joaquim Levy's efforts to shore up the country's finances after years of heavy spending.

Congress severely watered down some fiscal savings bills introduced by President Dilma Rousseff's administration earlier this year, reducing cuts in social security and unemployment benefits.

In the 12 months through May, the primary budget deficit narrowed to an equivalent to 0.68% of GDP from a 0.76% deficit in the year ended in April.

The disappointing fiscal results may increase resistance to Rousseff's austerity plan in Congress. Several of her allies there have been complaining that the tax hikes and spending cuts are deepening what is expected to be the country's worst recession in 25 years.

Levy, a fiscal hawk who served as Treasury chief a decade ago, has said it is too early to lower the budget savings target and that the government has new measures in hand to raise revenues. Meanwhile the overall budget balance, which includes interest payments, returned to negative territory in May with a deficit of 59.777 billion Reais ($ 19.39bn).