Federal Government asks the Supreme Court to maintain discharge from IOF and confront Congress

The government of President Luiz Inacio Lula da Silva (PT) raised the temperature in the institutional dispute with the National Congress by requesting the Supreme Court (STF) the immediate revalidation of the decree that increased the IOF (Tax on Financial Operations).

The Attorney General of the Union (AGU) requested on Tuesday (15) from Minister Alexandre de Moraes a precautionary measure that restores the validity of the rule, suspended after the legislature action.

The demand was presented during a conciliation hearing between Executive and Legislative mediated by the Supreme Court, but ended without agreement. Union attorney General Jorge Messias refused any negotiation and stated in a statement that the measure is essential to “restore the principle of separation of powers.”

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On the one hand, the government wants to ensure the expected collection with the increase in tax, considered essential by the Minister of Finance, Fernando Haddad, for the fiscal balance. On the other hand, the Senate has asked for more time to discuss alternative exits and expects the Supreme Court to maintain the suspension of the decree until the end of parliamentary recess in August.

In practice, AGU’s movement transfers the decision to the judiciary. Moraes, which had initially suspended both the Government’s decree and Congress measure, will now have to definitively position itself on the validity of the norm – and in favor of one side.

Risk of wear with legislature

The decision puts the Supreme Court again at the center of a dispute. An eventual decision -favorable decision to the government may expand the wear and tear between the judiciary and the congress, which has already mostly vetoed the increase in IOF. The pressure is even greater about Moraes, which is one of the preferential targets of criticism from the right and faces radical movements that defend to its impeachment.

Chamber Presidents Hugo Motta (Republicans-PB), and Senate, David Alcolumbre (Brazil-AP Union), hope Moraes will not make any decision before Congress can present his own proposal-something that should occur only in August.

Alternatives to increasing IOF

Meanwhile, Legislature leaders have been presenting alternatives to strengthen the Union cash without resorting to tax increases. Proposals include spending cuts and measures to raise revenues, such as the transfer of dividends from BNDES (National Bank for Economic and Social Development) to the Treasury.

Even so, the government insists on the constitutionality of the decree and maintains that the congress extrapolated its competence by sustaining the measure. For the economic team, in addition to the fiscal necessity, the retreat could signal the executive’s fragility in their relationship with Parliament.