Brazil's Finance Chief Resists Political Pressure for Pork

(Bloomberg) -- Brazil’s Finance Minister Henrique Meirelles is resisting requests for spending and tax breaks as embattled President Michel Temer attempts to shore up his support amid a damaging political crisis.

From civil servants pushing for larger tax exemptions, farmers demanding amnesty on back taxes and cabinet peers wanting more cash for infrastructure projects, Meirelles is reluctant to give in to demands from the government and its allies to help rally support in Congress and on the streets, according to four people with knowledge of the matter who were not authorized to speak publicly.

Temer’s chances of political survival have increased significantly since Brazil’s top electoral court on Friday acquitted him of illegally financing his 2014 election campaign. Still, the president remains mired in scandal and deeply unpopular, raising doubts about his ability to implement his investor-friendly reform agenda. Temer has offered various fiscal sweeteners in recent weeks, but with the economy struggling to emerge from the worst recession on record, the finance ministry is hesitant to loosen the purse strings.

Brazil’s budget deficit stands at 9.2 percent of gross domestic product and two credit rating agencies last month worsened their outlook on the nation’s sovereign ratings, citing the risk that prolonged political uncertainty paralyzes Brazil’s fiscal adjustment. Economists surveyed by the finance ministry expect the government to miss its fiscal target this year, according to the poll published on Tuesday.

One of the sticking points between the finance ministry and the presidential palace is Funrural, the rural workers’ fund. Meirelles has ruled out a full waiver on back taxes owed by farmers, despite support for the idea from Temer’s camp, according to two of the people who directly participated in the talks.

Another is Avancar, a new infrastructure program set to be announced in the next few days. Requests by one cabinet member for extra cash for the scheme was received with little enthusiasm at the finance ministry, according to three of the people.

Asked to comment on the story, the presidential palace said in an e-mailed statement that the government "maintains its commitment to balance the public accounts and to reach its fiscal target".

Last month the ministry freed up three billion reais ($900 million) to help the government with discretionary spending, but there is not much more room for maneuver in the 2017 budget without extra revenue.

A senior Temer aide confirmed there was pressure from civil servants to increase tax exemptions and that the government was making more regular payments of discretionary funds to legislators than during previous administrations. But if Meirelles says there are no funds, the president respects that position, said the aide who requested not to be named because he’s not authorized to comment publicly.

The finance ministry declined to comment for this article.