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BRASILIA, May 27 (Reuters) - Brazil's Senate on Wednesday approved an austerity measure that cuts pension benefits as part of President Dilma Rousseff's drive to reduce a widening fiscal deficit and regain investors' confidence in the once-booming economy.
Senators approved by 50 to 18 votes an unpopular bill known as provisional measure 664 that tightens access to survivor pensions and worker compensation, and they sent it to Rousseff to sign into law.
But to win enough backing, the governing party had to accept an amendment included by the lower house that makes it easier for workers to retire on full pensions with fewer years worked. Rousseff is expected to veto the changes which could raise outlays by 40 billion reais ($12.74 billion) in over a decade, according to government data.
On Tuesday, the Senate approved a similarly watered-down version of another measure curbing unemployment benefits. The bill known as provisional measure 665 was supposed to save the government 9 billion reais ($2.86 billion) a year, but amendments by lawmakers reduced that to about 5 billion reais.
The two bills are key to Rousseff's efforts to balance government accounts after years of overspending that threaten Brazil's investment-grade rating.
Rousseff and her new Finance Minister Joaquim Levy have faced stiff resistance from labor unions and from allies in Congress where members of the government coalition say workers are being left unprotected in the face of a looming recession.
The government had expected to save 18 billion reais per year with the two austerity measures but had to settle for less to get them passed Congress on time. Lawmakers still have to pass a bill rolling back payroll tax breaks, a measure that is facing strong opposition from business groups.
"These were two important victories this week, but the war has not been won, and the big battle is yet to come over the payroll tax bill," said Gabriel Petrus, an analyst with Brasilia-based consultancy Barral M Jorge Associates.
Finding itself in an awkward position backing unpopular belt-tightening measures, Rousseff's leftist Workers Party has vowed to make wealthy Brazilians pay their part of the austerity drive by raising taxes on large fortunes and inheritances. (Reporting by Alonso Soto; Writing by Anthony Boadle; Editing by Chris Reese and Cynthia Osterman)