August 19, 2015 / 3:25 AM / in 3 years

Brazil's Rousseff suffers fiscal setbacks in Congress

BRASILIA (Reuters) - Brazil’s Senate put off a vote on a key austerity bill on Tuesday and the lower house of Congress voted to increase the cost of a workers severance fund, two setbacks for President Dilma Rousseff’s efforts to fight a gaping fiscal deficit.

Brazil's President Dilma Rousseff waves during a meeting with governors at Alvorada Palace in Brasilia, July 30, 2015. REUTERS/Ueslei Marcelino

A bill rolling back payroll tax breaks was delayed by negotiations to avoid changes that would require its return to the lower house of Congress where Speaker Eduardo Cunha has obstructed government proposals since defecting to the opposition last month, senators said.

The vote, now scheduled for Wednesday, is crucial to end Brazil’s legislative gridlock, said Senate President Renan Calheiros, who has brokered a political deal with Rousseff’s government to ease tensions with Congress and quieten calls for her impeachment.

In the lower house, Cunha succeeded in passing a bill that doubles the savings rate of the FGTS fund from 3 percent to 6 percent staggered over four years, adding to government costs.

The fund is used to finance low-cost housing, and Finance Minister Joaquim Levy warned there would be less money available to build houses.

The bill raising payroll taxes was watered down by the lower house and is now expected to reduce revenues to 10 billion reais ($2.88 billion) a year from 13 billion reais originally planned, complicating Rousseff’s efforts to balance government accounts and avoid losing Brazil’s investment-grade rating.

In February, Rousseff made a policy U-turn and announced she was going to double the social security tax rate on corporate gross revenue, reducing payroll tax breaks for 56 sectors.

The roll-back is part of Rousseff’s effort to undo the fiscal measures aimed at stimulating the economy during her first term but which eroded the government’s accounts and raised fears about the country’s financial health.

Other government measures that included reducing pension and unemployment benefits have passed Congress, but were also watered down by lawmakers, reducing the final savings.

Additional reporting by Luciana Otoni and Alonso Soto; Editing by Lisa Shumaker and Muralikumar Anantharaman

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