Brazil announces tax hikes, spending cuts

The spending cuts and tax increases totaling 56 billion reais ($16.9 billion/12.9 billion euros) were announced in an effort to balance the books.

After a debt downgrade by the ratings agency Standard & Poor's last week to the "speculative" investment category, President Dilma Rousseff's government is seeking to prevent an exit of foreign capital.

The package, which is to include a freeze on public sector salaries and hiring as well as the elimination of 10 of the country's 37 ministries, was announced by Planning Minister Nelson Barbosa and Finance Minister Joaquim Levy in a news conference. Some 1,000 jobs are also to be cut under the plan, with spending on health and housing to be reduced.

Tax subsidies for the chemical industry are to be cut, and exporters of manufactured goods will see a reduction in tax breaks. Meanwhile, capital gains tax will rise to 30 percent.

"These are major corrections," Levy said.

Reluctant change of course

Rousseff had promised there would be no new budget cuts, but was understood to have been forced by circumstances into altering her position. The presentation of the package followed meetings between Rousseff and her ministers on Sunday and Monday.

The Brazilian government announced in August that the economy, the world's seventh largest, was officially in recession. Some economists have said the contraction could extend through 2016, becoming the country's longest recession since 1931.

The cuts are expected to be particularly unpopular with lower-income Brazilians, an electoral power base for Rousseff and her Workers Party. The party, in power for 12 years, is credited with lifting 40 million people out of poverty, but has suffered in light of the recession and a corruption scandal involving state oil company Petrobras.

rc/cmk (AFP, Reuters, LUSA)