UPDATE 1-Brazil's posts 35.1 billion reais 2021 deficit, best primary figure in 7 years

(Adds data and context, Guedes comment)

By Marcela Ayres

BRASILIA, Jan 28 (Reuters) - Brazil's central government reported a primary budget deficit of 35.1 billion reais ($6.51 billion) in 2021, equivalent to 0.4% of gross domestic product, the Treasury said on Friday, the best fiscal figure since 2014 and helped by a surge in tax revenues.

The result contrasts with the record deficit of 743.3 billion reais or 10% of GDP in 2020, when the government spent hundreds of billions of reais to avoid a further collapse of the economy, hit hard by the COVID-19 epidemic.

"Still carrying out policies to combat its economic and social effects, the government managed to practically rebalance its budget, promoting a fiscal adjustment greater than nine percentage points of GDP," said the Treasury.

Economy Minister Paulo Guedes said the improved deficit result for 2021 was due to the recovery of the economy and the government's control over spending, and not inflation as some economists have suggested.

Despite a second wave of the virus in 2021, government spending fell by 23.6% in real terms, mainly due to the reduction in a cash transfer program for the poorest.

At the same time, net revenue increased 21.2% over the previous year, driven by the resumption of economic activity, that led to record tax collections.

The increase in tax revenues was also helped by higher oil prices and the depreciation of Brazil's currency, increasing royalty income for the year.

In December, the central government posted a 13.8 billion reais surplus, against a deficit of 44.1 billion reais a year earlier.

The Treasury said it expected that the consolidated fiscal result for 2021, which includes figures from states, municipalities and state-owned companies, would be a surplus of over 40 billion reais.

If confirmed, it will be the first public sector surplus since 2013.

($1 = 5.3944 reais) (Reporting by Marcela Ayres; Editing by Cynthia Osterman)