Brazil eases spending curb despite revenue shortfall from dividend tax

The government also estimated a primary budget deficit of 52 billion reais this year, compared with a 60.3 billion reais shortfall seen in May.

The projected primary deficit corresponds to 0.38% of gross domestic product (GDP), versus a full-year target of a 0.25% of GDP primary surplus.

Under Brazil's budget rules, however, the government can exclude certain expenditures, most notably part of its large stock of court-ordered payments, when measuring compliance with the fiscal target.

After these adjustments, the government now expects to post a primary surplus of 10.8 billion reais, up from a prior estimate of 4.1 billion reais. The surplus, equivalent to 0.08% of GDP, is consistent with the fiscal goal, which allows a tolerance band of 0.25% of GDP in either direction.

The government projected 28 billion reais in revenue this year from taxes on dividend income, but the tax service estimated on Friday it would only reach 17.2 billion reais.

Planning and Budget Minister Bruno Moretti told journalists the government decided not to incorporate the shortfall in revenues into the report as it wants to gather more data on the issue.

Moretti added the government is comfortable that the current outlook will allow it to meet its fiscal target range.