(Adds comments from lawmaker and context)
By Alonso Soto
BRASILIA, May 26 (Reuters) - Brazil’s Senate on Tuesday approved a watered-down version of an austerity measure that curbs labor benefits as part of President Dilma Rousseff’s bid to restore investor confidence in her management of the country’s stagnant economy.
The measure, 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 bill and another measure to cap some of the world’s most generous pension and labor benefits are key in Rousseff’s drive to balance government accounts after years of overspending that threatens Brazil’s investment-grade rating.
Rousseff and her new Finance Minister Joaquim Levy have faced stiff resistance in Congress where some members of the government’s coalition say the measures leave workers unprotected in the face of a looming recession.
The measure, which narrowly passed 39-32, toughens conditions for jobless Brazilians to gain access to welfare and unemployment insurance. The measure now has to be signed into law by Rousseff.
To quell a revolt from some members of its own Workers Party the government last week promised to veto a clause in the measure that restricts access to a wage bonus. It was not immediately clear if that promise remained in place after the vote.
The head of the Workers Party in the Senate, Humberto Costa, called on his peers to approve the austerity measure, saying the government planned to increase levies on the rich with new taxes on large fortunes and inheritance. Levy and Planning Minister Nelson Barbosa have said taxing fortunes has proven to be inefficient in other countries.
Originally, the government expected to save 18 billion reais per year with the two austerity measures. The second measure, which was also diluted by a series of amendments, is expected to be voted on Wednesday.
Levy has said the approval of the measures is key to meet a fiscal goal that analysts say is quickly getting out of the government’s grasp as a shrinking economy drags down revenues.
Last week, the government cut its budget by 69.9 billion reais, in a show of its commitment to cover its widening fiscal deficit. (Reporting by Alonso Soto; Editing by Lisa Shumaker)