Reuters International

Brazil's Vice President Michel Temer arrives at the Planalto Palace in Brasilia, Brazil in this April 22, 2016 file photo. REUTERS/Ueslei Marcelino/Files

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By Alonso Soto and Anthony Boadle

BRASILIA (Reuters) - Rebalancing Brazil's overdrawn fiscal accounts and restoring credibility will be the priorities of a Michel Temer government, but raising taxes is not on the cards yet, a senator close to the current vice president said on Wednesday.

Senator Romero Juca, the leader of Temer's PMDB party, told international media a new government would plan to reform the country's onerous pension system. Temer will replace President Dilma Rousseff if, as expected, the Senate suspends her from office to start her impeachment trial in mid-May.

"Raising taxes is not the first option... at a time of recession raising taxes does not increase revenues," said Juca, an economist who is being considered for the post of planning minister.

To rapidly restore confidence in the Brazilian economy, Juca said the next administration has to review what he called "unsustainable" public spending levels and could even discuss setting limits to government debt.

He declined to detail how the government could reduce expenditures, but acknowledged a Temer administration would slash the number of ministries to save costs.

Temer would only raise taxes under "extreme circumstances" to shore up the public accounts, another aide close to Temer told Reuters.

Temer has ruled out reinstating a levy on banking operations known as CPMF, but could consider raising the financial transaction tax, known as IOF, or the Cide fuel tax if needed later in his presidency, said the source who asked for anonymity because he was not allowed to speak publicly.

Juca stressed that Temer has not invited anyone to be part of a cabinet yet, and will only do so after the Senate decides to suspend Rousseff pending an impeachment trial.

He said a Temer administration could consider giving complete independence to the central bank, which only has administrative autonomy. Two other sources close to Temer told Reuters there is no consensus inside his Brazilian Democratic Movement Party (PMDB) about giving the bank total independence.

Juca said Temer would move quickly to recover credibility in the government and its agencies, guarantee juridical stability with less state intervention and restore predictability in the economy, lack of which is holding back investors.

The PMDB does not believe a bid to start impeachment proceedings against Temer will ever get off the ground and an electoral court case that could annul the 2014 election of Rousseff and her running mate Temer would take months and is "not a factor of political instability," Juca said.

Juca said a Temer administration would be determined to restore the financial health of state-run oil company Petrobras, which has been hit by a massive corruption scandal and fuel prices kept low by the Rousseff government.

(Reporting by Alonso Soto and Anthony Boadle; Editing by Alistair Bell)

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