Alexandre de Moraes, a Supreme Court justice in Brazil, stepped into the middle of a high-stakes impasse between President Luiz Inácio Lula da Silva and Congress on a politically charged tax increase.
Moraes provisionally suspended the executive decree that increased the IOF postage on specific financial transactions, and Congress’s annulment of that decree in a ruling released Friday.
In May, Lula announced an IOF (Tax on Financial Operations) hike to raise revenue to avoid budget freezes and to comply with the country’s new fiscal rules.
However, lawmakers pushed back against the measure almost immediately, voting last month to reverse the president’s action.
According to Reuters, it was the executive branch that challenged in court, because this was a constitutional overreach by Congress.
In a ruling published Friday, Moraes temporarily suspended both the presidential decree that raised the IOF (Tax on Financial Operations) and the congressional action that annulled the increase.
The decision, he noted, was a “reasonable” way to avoid further escalation and enable constructive dialogue between Brazil’s executive and legislative powers.
Mediation as a middle ground
To calm the institutional conflict, Moraes organised a mediation session on July 15, inviting officials from both branches to seek a resolution.
His decision to halt both the tax hike and its reversal was seen as a balanced action aimed at preventing further escalation between the executive and legislative branches.
Moraes was concerned about what he saw as an “undesirable clash” defined by “successive and repeated antagonistic remarks” from both sides.
In his decision, he underlined the importance of concord between organs of government as a basic element of Brazil’s democratic system, rather than simply maintaining their independence.
Political reactions signal openness
The IOF tax, which is levied on various financial operations such as credit, foreign exchange, and private pension plans, was increased by the Lula government in May.
The administration presented the hike as a measure to boost revenue and reduce the need for spending freezes, in line with Brazil’s fiscal framework.
The Supreme Court’s decision was interpreted by both sides as a cautious acceptance of the other side’s position.
Lower House Speaker Hugo Motta told Congress is still receptive to institutional dialogue. He said the Supreme Court ruling comes in line with the legislature that the tax would not be increased.
Finance Minister Fernando Haddad, from the executive branch, celebrated the move as a constitutionality line between the branches of power.
He restated the intent of the government to show that the tax increase was intended to fix the lack of balance in the tax system.
The July 15 mediation conference will be widely monitored to see if the two branches can reconcile their disagreements without further judicial intervention.
The case has emerged as a critical test of Brazil’s political stability and institutional collaboration during Lula’s presidency.
With the IOF tax still in doubt and broader fiscal targets at stake, the outcome might influence not only the government’s revenue strategy but also the tone of executive-legislative relations in the coming months.
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