UPDATE 2-Brazil vows fiscal discipline despite revenue fall

Mon Apr 27, 2009 12:03pm EDT
(Adds details on excluding Eletrobras from budget surplus target)
By Walter Brandimarte
NEW YORK, April 27 (Reuters) - Brazil's government will see its revenues declining 6 percent this year, but will not relax its grip on fiscal accounts as as the country heads into presidential elections in 2010, Planning Minister Paulo Bernardo said on Monday.
"There is no reason to believe that we will loosen our fiscal accounts in 2010 because of the elections," Bernardo told investors in New York, arguing that the government maintained fiscal discipline during President Luiz Inacio Lula da Silva's re-election campaign in 2006.
Government revenues will decline this year as a result of the economic slowdown and recent tax cuts adopted by the government to support the economy.
"But if we hadn't cut taxes, we would probably see revenues falling even more this year," Bernardo said during the conference, organized by the Brazilian-American Chamber of Commerce.
He added that President Lula has requested more tax cuts to support specific sectors of the economy, but refused to give details.
Brazil this month cut taxes on a range of domestic appliances and construction materials for a three-month period. Earlier this year, the government had already cut industrial taxes for the automobile industry, which has helped boost sales.
Bernardo said government revenues have fallen by 16 percent during the first two months of the year, compared with the same period a year ago. In March, however, the decline was 9 percent, he added.
The government is also studying to increase a so-called CIDE economic domain tax on fuel sales when state-owned oil firm Petrobras (PETR4.SA) implements an expected cut in oil prices, Bernardo said.
Bernardo added that Eletrobras (ELET6.SA) could be the next state-owned firm after oil company Petrobras to be excluded from the government's primary surplus target, if it improves its corporate governance.
According to the minister, such a move would make sense because the budgets of Petrobras and Eletrobras are not linked to the government budget.
"We cannot use their budget to pay government debt," he said.
The primary budget surplus represents excess revenue over spending before interest payments are taken into account. It is seen by investors as a gauge of a country's debt service capacity. (Editing by Walker Simon)