Rousseff Suffers Setback as Brazil’s House Boosts Pensions

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Brazil’s lower house approved an amendment that boosts government spending on retirement benefits, a setback for President Dilma Rousseff’s administration as it struggles to shrink the deficit and avert a credit downgrade.

Lawmakers on Wednesday evening voted 206 to 179 in favor of the amendment that raises retirement payouts every year by the same formula used to calculate minimum-wage increases. The approval came just minutes after legislators approved the basic text of the broader bill to extend the formula for minimum-wage increases to 2019. The bill and amendment now go to the Senate.

Social-Security Minister Carlos Gabas said Tuesday the amendment would cost the government 9.2 billion reais ($3 billion) a year. The extra spending would come at a time when the administration is raising taxes and cutting back on expenditures to shore up its fiscal accounts.

“There aren’t resources to pay for this increase,” Siba Machado, the leader of the ruling Workers’ Party in the lower house, said. “There’s a risk of bankrupting social security, and then nobody gets paid.”

Lower house President Eduardo Cunha, a member of the allied PMDB party, said Rousseff should veto the legislation because it shows investors Brazil can’t control its fiscal policy, the government news agency reported.

The benchmark Ibovespa stock index sank 1.5 percent at 1:50 p.m. Sao Paulo time after remaining little changed in the past two days.

Investment Grade

Wednesday’s vote also comes as the administration tries to win congressional approval of a separate series of bills that lift taxes on company sales and imports while cutting worker benefits. Finance Minister Joaquim Levy says failure to pass the austerity package would put Brazil’s investment grade at risk.

The lower house on Thursday by 253 to 144 approved the basic text of the bill promoted by Levy that raises taxes on company sales. Legislators are voting on amendments that threaten to reduce the amount of revenue the government would raise from the tax increase.

Many lawmakers, including some from the ruling coalition, are reluctant to endorse Levy’s belt-tightening measures as Brazil enters its first recession in six years and unemployment rises. Eighty lawmakers from Rousseff’s base of allies voted in favor of Wednesday’s amendment, including two from her party.

“Remember the opposition is a minority, so the problem is the allied base,” Andre Cesar, an independent political analyst who previously worked at CAC Consultoria, said. “This won’t be the last defeat. There will be others on any bill that has a social impact or that can hurt this government.”

The dissent in Congress comes as Rousseff’s popularity among Brazilians sinks. Her approval rating in a Datafolha poll published over the weekend fell to the lowest level of any president since 1992.

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