June 25, 2015 / 1:06 AM / 3 years ago

Brazil lawmakers pass pension spending hike in blow to Rousseff

BRASILIA (Reuters) - Brazil’s lower house of Congress on Wednesday approved a measure that would raise pension expenditures in coming years, in another surprise defeat for President Dilma Rousseff who is struggling to shore up the government’s finances.

In a tight vote, lawmakers passed an amendment to readjust pensions annually with a formula currently used to raise the minimum wage, likely lifting already-high social security outlays. The measure still has to clear the Senate.

Earlier on Tuesday, lawmakers approved a decree to maintain that minimum wage readjustment formula until 2019. Under that formula the minimum wage is raised by the prior-year inflation plus the level of gross domestic product from two years back.

Pension benefits are adjusted every year based on inflation.

The government had opposed using that scheme for pensions, saying it would cost state coffers an extra 2 billion reais ($646.6 million) for every one percentage point increase in pensions.

The presidential palace and social security ministry did not respond immediately to requests for comment.

“This a bill that the government cannot pay,” said Mansueto Almedia, a Brasilia-based public accounts specialist. “This raises the risk of our rating being downgraded.”

Almeida said the government could be forced to further hike taxes and raise its indebtedness to pay for the extra outlays.

Rousseff has already raised taxes and cut spending with pension and other social benefits to rebalance the public accounts and avoid losing Brazil’s coveted investment-grade rating.

Many lawmakers from allied parties, including some from Rousseff’s own Workers’ Party, voted for the amendment, highlighting strong resistance to an unpopular austerity push led by Finance Minister Joaquim Levy.

Last month, Congress surprised the government with the approval of an amendment to make the retirement age more flexible.

Despite criticism from union leaders and ally lawmakers, Rousseff ended up vetoing the amendment and offering a alternative pension scheme to reduce the potential losses by 50 billion reais through 2026.

Reporting by Alonso Soto; Editing by Diane Craft

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