The Brazilian government will present a package of new fiscal measures next week that should help restore public finances. According to Finance Minister Fernando Haddad, the approval of these measures is essential to revisit the controversial IOF (Imposto sobre Operações Financeiras) tax increase.
Alignment with congress necessary
Haddad spoke out Tuesday after a working lunch with President Luiz Inácio Lula da Silva, the presidents of the Chamber of Deputies and the Senate, and several ministers. He stressed that, for the time being, the administration is reluctant to release details because the proposals must first be fine-tuned in consultation with congressional leaders. A new meeting is scheduled for next Sunday. Only after that meeting will the measures be made public, Haddad explained:
"The plan is to submit the proposals starting next week. We are going to be very careful about this because we are dependent on support in Congress."
Earlier this week, the minister hinted that the announcement would follow after Sunday's conference. Now he stresses that without (partial) approval of the new package, there is no room to revise the recently drafted royal decree on the IOF pay increase.
Causer of political turmoil
In recent weeks, there was great unrest in Brasília after the government, through a decree, increased the IOF tax on various credits, currency transactions and private pension products. With this measure, the cabinet hoped to increase state revenues, but it led to fierce opposition from parliamentarians who mobilized to undo the increase. They viewed the intervention as unilateral and unjustified at the expense of citizens and businesses.
After the luncheon, Haddad said this debate ultimately had positive consequences. According to him, it led to better cooperation between the executive and legislative branches:
"The best outcome of this incident is that we are now working with Congress to find structural solutions to the budget problem."
Broader package of structural reforms
The new fiscal package would go further than previous proposals, according to Haddad. Previously, late last year, the government presented a plan that included some 70 billion reais (about $12.4 billion) in cuts and spending reductions through 2026. This time, the measures are reportedly set up as a combination of a constitutional amendment, a bill and an executive order sent to Congress.
Minister Haddad emphasized that subsequent adjustments to the IOF tax are inextricably linked to broader corrections of what he describes as "distortions in the financial tax structure." Earlier, he said:
"We aim to restore the federal budget by eliminating tax distortions and removing so-called unfair tax breaks, rather than freezing or reducing government spending. After all, spending has increased since President Lula took office."
Balancing between necessity and political support
The Lula government faces the challenge of reducing a budget deficit on the one hand and maintaining the support of supporters and opposition in Congress on the other. The fiscal stance is not substantially different from previous cabinets, but the political sensitivity surrounding the IOF tax adds complexity to the situation.
- President Lula has long emphasized that he does not plan rigorous austerity, opting instead for redistribution and structural reforms.
- Critics say the budget gap was created mainly by increased social spending and aid packages since 2023.
What is clear is that the coming week will be crucial for Brazil's fiscal course. Once Sunday's meeting with congressional leaders has taken place, Minister Haddad will take final stock. If there is sufficient political support, the IOF increase is expected to be adjusted or possibly withdrawn altogether. Failing that, the cabinet with narrow majorities in the House and Senate risks facing new political tensions as the budget deficit continues to widen.
