Fiscal Austerity Passes First Test in Brazil’s Congress

Fiscal Austerity Passes First Test in Brazil’s Congress

Passage seen as victory for President Rousseff, who has called for fiscal reforms to avoid sovereign-debt downgrade

By

PAULO TREVISANI and DJANIA SAVOLDI/WSJ

May 6, 2015 9:39 p.m. ET

BRASÍLIA—Brazil’s lower house of Congress on Wednesday approved the first of two controversial austerity measures aimed at cutting government spending on worker benefits.

While the measure must still be approved by the Senate, Wednesday’s result was seen as a significant victory for embattled President Dilma Rousseff, who has been advocating fiscal reforms to avoid a potential downgrade of Brazil’s sovereign debt.

The Chamber of Deputies voted 252-to-227 to, among other changes, make it tougher for workers to qualify for unemployment benefits, doubling the minimum time worked to 12 months. The vote comes after weeks of intense negotiations, as lawmakers from Ms. Rousseff’s own labor-backed governing Workers’ Party, or PT, had threatened to kill the bill on fears the measure would alienate their core constituents.

The vote was being closed watched as a test of support for Finance Minister Joaquim Levy, who has played an important role in negotiations with lawmakers.

“If the bill didn’t pass, it would significantly worsen the spirits,” said economist Fabio Kanczuk before the vote, amid signs that the measure would pass the lower house.

With Brazil’s economy stagnating and its national debt rising, the country needs to boost government savings to avoid a credit-rating downgrade to junk status.

The measure appeared in jeopardy earlier in the week as PT lawmakers refused to close ranks, forcing the vote to be postponed. But Wednesday afternoon, the party’s House whip Sibá Machado took the podium to announce that the PT would vote to pass the bill.

The announcement was followed by opposition attempts to delay the vote, but all of them failed. The Brazilian Social-Democracy Party, or PSDB, led the conservative opposition to the bill, saying the Rousseff administration should cut its own costs before reducing workers’ benefits.

Another controversial bill is in the pipeline. It would require a widow or widower to have been married at least two years to qualify for government benefits paid upon the death of a spouse. Discussions could begin as early as Thursday.

Combined, the two bills could save up to 15 billion Brazilian reais a year ($5 billion) in taxpayer money, according to government calculations.

“It is a lot of money…. It is crucial for the fiscal reform,” Mr. Kanczuk said.

Following approval by the Chamber of Deputies, the next stop is the Senate, where the fate of both bills is uncertain.

“The tension will continue in the Senate,” said Ricardo Caldas, a political scientist at University of Brasília.

Senate speaker Renan Calheiros has been increasingly hostile to the Rousseff administration even though his Brazilian Democratic Movement Party, or PMBD, is part of the president’s ruling coalition.

A leading PT senator said the party will be united supporting fiscal austerity in the Senate.

The unemployment-benefits bill could be voted on by the Senate as early as next week.

Write to Paulo Trevisani at paulo.trevisani@wsj.com