SAO PAULO (Reuters) - Brazil's interim President Michel Temer and congressional allies will postpone planned pay raises for judiciary employees that could cost taxpayers 68 billion reais ($21 billion) by the end of 2018, O Estado de S. Paulo newspaper said on Saturday.

Estado, citing people who met on Friday with Temer and some cabinet ministers in São Paulo, said the decision stemmed from the need to show commitment to tighter spending policies ahead of the impeachment trial of President Dilma Rousseff, which could happen as early as this week.

One ally told Estado that Temer could not be seen "giving away pay hikes to the head justice of the Federal Supreme Court just as he presides over the impeachment trial."

All state employees in the judiciary, including judges, court officials and prosecutors, were earmaked for pay hikes.


By deferring them during Brazil's harshest recession in eight decades, Temer could win much-needed support for an ambitious streamlining of government spending that includes revamping a pension system that is losing money, labor and tax reforms and a cap on budget spending growth.

In an interview in Veja magazine on Saturday, Finance Minister Henrique Meirelles said that growing confidence on the outlook for the economy in the wake of Rousseff's impeachment could boost tax collection by 45 billion reais this year.

That could help the government close an expected deficit for this year without raising taxes, Meirelles told Veja.

The press offices of Temer and Meirelles had no immediate comment on the Estado and Veja reports.

($1 = 3.2058 Brazilian reais)

(Reporting by Guillermo Parra-Bernal; editing by John Stonestreet)