Pending Ruling May Hit Brazil Deficit Effort

Brazil said it will cut spending or raise taxes to trim its budget deficit and shore up investor confidence if the nation’s highest court strikes down a new $1.2-billion social security tax. The pending ruling threatens to derail a key plank in the government’s effort to trim its $72-billion budget deficit. Just months ago, investors, concerned that the government couldn’t afford the cost of financing the shortfall, sparked an outflow of capital that led to January’s currency devaluation. “It again confirms that real fiscal reform in Brazil is very difficult,” said Felipe Garcia, a Latin American economist. The new tax aims to tackle an old taboo in Brazilian politics--stepping on the interests of the nation’s almost 1 million government pensioners in order to narrow the fiscal gap. The measures were a condition to the $41.5-billion bailout package by the International Monetary Fund. The government would more likely cut spending before raising taxes if it were to lose the court battle and the $1.2 billion worth of revenue budgeted for this year, a Finance Ministry spokesman said. He wouldn’t give specifics.