* Vote signals growing difficulty to finance spending
* Defeat shows ongoing split within ruling coalition
By Raymond Colitt
BRASILIA, Sept 21 Brazil's lower house of
Congress on Wednesday rejected a government proposal to create
a new tax on financial transactions to pay for healthcare,
raising questions about President Dilma Rousseff's ability to
maintain her program of fiscal austerity.
The government's defeat signals growing pressure for the
administration to increase spending on public services without
raising taxes, already among some of the highest in the world.
It also shows that Rousseff has not yet managed to patch up
relations with her main allies, after months of political
Despite her large nominal majority in Congress, the bill
was defeated by a vote of 355 to 76, with 4 abstentions.
None of the parties in Rousseff's broad coalition backed
the proposal, except for her own Workers' Party.
The political crisis in Brazil included last week's
resignation of Tourism Minister Pedro Novais, the fifth cabinet
member to depart in just over three months. Austerity measures
and a series of corruption scandals had rattled the ruling
coalition and caused allies to openly boycott Rousseff's
Investors are paying particularly close attention to the
government's budget after the central bank's surprise interest
rate cut in late August. [ID:nE5E7IM05G]
With 12-month consumer price rises still well above the
upper limit of the government's 6.5 percent target for this
year, inflation control will depend increasingly on tight
TAX DEFEATED BEFORE
Rousseff and other cabinet members in recent days lobbied
in favor of a new tax to finance health spending.
The financial transaction tax would have brought back one
of the country's most controversial levies. Before it was
defeated by Brazil's opposition parties in 2007 in a rare loss
for Rousseff's predecessor Luiz Inacio Lula da Silva, the tax
raised about 40 billion reais ($21 billion) a year.
All government allies, including the centrist PMDB party,
the largest in Rousseff's coalition, backed an amendment by the
opposition DEM party to eliminate the tax.
"Don't talk to us about creating new taxes, we won't back
it," said Eduardo Henrique Alves, PMDB leader in the lower
The PMDB was at the center of Rousseff's disputes with her
allies in recent weeks. Its leaders demanded more second-tier
government jobs and bigger funds for legislators to spend in
But widespread opposition among tax payers and industry
leaders swayed legislators to oppose the new tax.
"During the (election) campaign President Rousseff promised
a thousand times she wouldn't raise taxes and now she wants to
raise taxes -- an amazing turnaround," said Ronaldo Caiado, a
lower-house deputy of the DEM party.
At around 37 percent of gross domestic product, Brazil has
one of the highest tax burdens of any major economy.
The head of the Chamber, Marco Maia, created a committee
that is to propose alternative sources to finance health.
(Additional reporting by Maria Carolina Marcello; Editing by