Brazilian pension reform bill clears first hurdle in Congress

BRASILIA (Reuters) - A pension reform proposed by President Michel Temer that would add more than a decade to Brazilians’ working lives will be debated in Congress after an overnight vote that laid bare divisions among lawmakers over the plan.

Pension reform is the next move by Temer to bring a widening budget deficit under control after he won approval from lawmakers on Tuesday to cap increases in public spending at the rate of inflation for 20 years.

The lower house’s constitutional affairs committee voted 31-20 to accept the new bill for debate early on Thursday after 10 hours of delaying tactics by left-wing parties opposed to its introduction.

The proposal, which still faces an uphill path to win approval, sets a minimum retirement age of 65 in a country where people work on average until 54.

Social security costs make up about 40 percent of the government’s spending before debt payments. They are a major cause of an increasing public debt and considered a threat to Brazil’s future finances.

Balancing government accounts is essential if Brazil is to revive business confidence in an economy stuck in a two-year recession and recover its investment grade credit rating.

A special commission to study the pension reform will be set up in February after congress returns from its holiday recess.

But the proposal, which would amend Brazil’s constitution, faces fierce opposition from labor unions of all political stripes.

Temer’s administration has also been weakened by corruption allegations against his administration that could derail his reform plans. He took office just six months ago, replacing impeached leftist president Dilma Rousseff with a promise to clean up government and balance the budget.

Negotiations with unions over the pension reform are expected to resume in February, once lawmakers have elected the new leaders the Senate and lower house of Congress.

In another proposal to revive Brazil’s finances, the Senate on Wednesday passed measures to help cash-strapped states, allowing them to suspend debt payments to the federal government if they limiting spending and pursue privatizations. The lower chamber must still approve changes to the bill.

Reporting by Anthony Boadle; editing by John Stonestreet