By Lisandra Paraguassu

By Lisandra Paraguassu

BRASILIA (Reuters) - Brazilian President Michel Temer on Friday ruled out tax breaks to kick-start industrial production and called on businesses to step up investment to help pull the country from a two-year recession.

In a radio interview, Temer stressed that government health and education budgets would not suffer from an unpopular proposal before Congress to cap public spending to stave off a fiscal crisis.

Opponents of the proposal, which limits spending increases to the rate of inflation for 20 years, say it would hit Brazil's poor hardest and increase the growing ranks of the unemployed.


Temer said wealthy Brazilians should invest in the economy again as growth begins to resume.

"We are not going to give any tax breaks to encourage them to produce more," Temer told Radio Gaucho. "They will have to produce more to face demand in a rekindled economy."

A congressional committee approved Temer's proposed spending cap on Thursday. His government is confident it can be enacted this year, allaying investors' fears that Brazil's overdrawn accounts are leading to insolvency.

In more good news for Temer efforts to revive the economy, September inflation fell to its lowest for the month since 1998, paving the way for the central bank to ease cripplingly high interest rates in two weeks' time.

Economists say September data could also indicate a recovery in manufacturing activity, backing up assertions by Temer's finance minister, Henrique Meirelles, that confidence is back and Latin America's largest economy is returning to growth.

Temer, who replaced impeached president Dilma Rousseff four months ago and will serve out the remainder of her term through 2018, repeated that his government would not raise taxes to restore its finances. For Temer, the spending cap is vital to restore growth and create jobs and renewed prosperity.

"We need to recover the Brazilian state now," Temer said, "so that whoever is elected in 2018 can receive a calmer country."

(Writing by Anthony Boadle; Editing by Lisa Von Ahn)