May 4, 2017 / 1:38 AM / 3 months ago

Brazil pension reform clears hurdle, faces tough approval path

A man sits at the entrance of a shop in Sao Paulo, Brazil May 3, 2017.Nacho Doce

BRASILIA (Reuters) - President Michel Temer's proposal to reform Brazil's costly social security system cleared a committee vote on Wednesday, but the measure, deeply unpopular with voters, faces an uphill battle in the full Congress.

The committee voted 23-14 to approve the constitutional amendment, which would make Brazilians work longer and reduce pension benefits to plug a widening budget deficit at the root of the country's worst recession ever.

Temer spokesman Alexandre Parola told reporters the vote numbers showed that "Brazilian society recognizes the urgent need for reforming the social security system."

Presidential aides said, however, the government was not certain it had secured the two-thirds vote needed in the full lower house chamber to approve a bill that is crucial to Temer's efforts to recover investor confidence and restore investment.

A vote in the full house planned for next week has been put back to allow the government coalition to muster the necessary 308 votes by swaying lawmakers worried about angering voters ahead of next year's elections.

Pension reform is a contentious issue in Brazil, which has one of the world's most generous social security systems, allowing retirement on average at the age of 54 with almost full benefits, compared with 72 years in Mexico.

The bill sets a minimum retirement age for the first time in Brazil, at 65 for men and 62 for women.

Dozens of prison guards protesting the new retirement rules stormed the committee room after Wednesday night's vote and were contained by congressional police using pepper spray. Lawmakers had to adjourn the session.

Elderly women sit in a coffee bar in Sao Paulo, Brazil May 3, 2017.Nacho Doce

Changes to the country's labor laws and pension system triggered violent clashes between demonstrators and police in Brazil's main cities on Friday during the first national strike called by unions against Temer's austerity agenda.

About 71 percent of Brazilians oppose the bill, according to a Datafolha survey on Monday.

Concessions

Brazil's President Michel Temer reacts during a ceremony at the Planalto Palace in Brasilia, Brazil April 12, 2017.Ueslei Marcelino

Economists warn that the social security system is one of the main threats to Brazil's government finances, with pension expenditures accounting for nearly half of its spending before debt payments.

Temer made concessions to ease passage of the proposal at the center of his austerity plan, raising doubts among investors about the watered-down bill's ability to help narrow a bulging budget deficit that cost Brazil its investment-grade credit rating two years ago.

Temer agreed to set a lower retirement age for women, police, teachers and rural workers and grant more generous transition rules for workers after allies balked at backing it.

Finance Minister Henrique Meirelles has said the changes will reduce the reform's impact by 25 percent over 10 years, lowering fiscal savings to 600 billion reais ($190 billion).

Investors see pension reform as the only way for Brazil to shore up its finances without resorting to huge tax hikes. The Brazilian real would probably drop more than 10 percent if the scandal-plagued Congress fails to pass the bill, currency strategists estimated in a Reuters poll on Wednesday. [BRL/POLL]

Without the overhaul, Brazil's aging population is expected to lift social security spending to 17.2 percent of gross domestic product by 2060, from 8.1 percent last year, according to government estimates.

Additional reporting by Lisandra Paraguassu, Alonso Soto and Silvio Cascione; Writing by Anthony Boadle; Editing by Leslie Adler and Peter Cooney

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