Brazil's government said it will issue a provisional measure to offset the cost of a controversial payroll tax exemption as it seeks to maintain the benefit of derailing efforts to hit its main fiscal target this year.
The measure will limit the compensation of tax credits for companiesthe Ministry of Finance announced on Tuesday.
The payroll tax exemption for municipalities and 17 economic sectors has been a source of tension between Congress and the government of President Luiz Inácio Lula da Silva, which attempted to end it as part of Finance Minister Fernando Haddad's efforts to eliminate the country's primary fiscal deficit, which excludes interest payments, by 2024.
After opposition from lawmakers and businesses, the government finally decided to gradually end the exemption, which will cost 26.3 billion reais ($5 billion) this year., according to projections from the Ministry of Finance. The new provisional measure will have a fiscal impact of 29.2 billion reais (US$5.533 million) to cover the cost, he said.
Haddad has faced skepticism from markets and investors about his ability to meet the zero deficit goal.especially as Lula has tried to increase spending to boost Latin America's largest economy.
Meeting the fiscal target is essential, especially given global economic volatility driven by the Federal Reserve's caution on US interest rates.said the ministry's executive secretary, Dario Durigan, during a press conference Tuesday in Brasilia.
