Brazil Senate to vote on key austerity bill Wednesday

The Bill, which rolls back payroll tax breaks, is important to contain fiscal deficit

Brazil's Senate put off until Wednesday voting on a bill that rolls back payroll tax breaks, a key measure in President Dilma Rousseff government's austerity plan to bridge a gaping fiscal deficit.

The delay was due to negotiations to avoid changes so the bill would not have to return to the lower house of Congress where Speaker Eduardo Cunha has obstructed government proposals since defecting to the opposition last month, senators said.

The vote is crucial to end legislative gridlock, said Senate President Renan Calheiros, who has brokered a political deal with Rousseff to ease tensions with Congress and quiet calls for her impeachment.

The original bill was watered down by the lower house to partially maintain tax breaks for several business sectors, including transportation, communication, poultry and others.

The changes were expected to reduce revenues to 10 billion reais ($2.88 billion) a year from 13 billion reais originally planned, complicating Rousseff's efforts to balance government accounts and avoid losing Brazil's investment-grade rating.

In February, Rousseff shocked businesses by making a policy U-turn and announcing she was going to double the social security tax rate on corporate gross revenue, effectively reducing payroll tax breaks for 56 sectors.

The roll-back is part of Rousseff's effort to undo the fiscal measures aimed at stimulating the economy during her first term but that eroded the government's accounts and raised fears about the country's financial health.

Other government measures that included reducing pension and unemployment benefits have passed Congress, but were also watered down by lawmakers, reducing the final savings.

With the backing of Rousseff, Calheiros is pushing a pro-business agenda that includes measures like fast-tracking environmental permits and unifying inter-state taxes.