BRASILIA - Minister Alexandre de Moraes , of the Supreme Federal Court (STF) , suspended this Friday, the 4th, the effects of all decrees that deal with the Tax on Financial Transactions (IOF) and determined a conciliation hearing between the Lula government and Congress on the subject on July 15th.

According to the minister, the clash between the Executive and the Legislative, with “successive and repeated antagonistic statements” is “undesirable” and “strongly” contradicts the constitutional principle that “determines the independence of the Powers and demands harmony between them”.

The conciliation meeting was scheduled for 3:00 p.m. on July 15. Moraes ordered the summons of the Presidents of the Republic, the Federal Senate and the Chamber of Deputies, as well as the Attorney General's Office, the Attorney General's Office and the other parties to the action to participate in the hearing.

“After the conciliation hearing, the need to maintain the injunction granted (the suspension of both Executive and Legislative decrees) will be analyzed”, he indicated.

The minister stressed that the decision in question was motivated by provocations from both the Executive and the “largest opposition party” (the PL) and the party supporting the government (PSOL). In Moraes’ view, the ruling demonstrates the “importance of the effective constitutional jurisdiction exercised by the STF, to affirm the absolute validity of the Federal Constitution”.

“The actions demonstrate the importance of not confusing the exercise of the STF's legitimate constitutional competence with supposed and undefined judicial activism and dispel the confusion between empty speeches of self-restraint by the Judiciary with suggestions for a tragic omission or serious prevarication or even with unacceptable institutional cowardice so that the constitutional text is not decided and is not enforced,” Moraes noted.

According to the minister, in principle, both the presidential decrees on the tax and the decree issued by Congress to overturn the measure “appear to be far from the constitutional assumptions” required for the respective norms.

In the Executive measure, the minister initially points out “serious and well-founded doubts about a possible misuse of purpose for its publication”. In the legislative decree, Moraes questions the fact that it affects an autonomous decree of the President of the Republic.

Assessing the allegations made by the Lula government, the Supreme Court Justice indicated that the Constitution does not allow a legislative decree to be used against measures that do not regulate laws. According to Moraes, the acts of the Executive Branch are not subject to repressive control by means of a legislative decree.

Along these lines, Moraes highlighted that the possibility of Congress suspending an Executive decree is something “exceptional” and that it is restricted to acts that “exceed the regulatory power”.

On the other hand, the minister considered reasonable the claim that the IOF is an extra-fiscal tax, without a revenue-raising purpose, and considered that the Judiciary can analyze possible deviations from the purpose of administrative acts by the Executive.

“This doubt regarding the purpose of issuing the decree, pointed out by both Houses of the National Congress in issuing the legislative decree, is reasonable when the Ministry of Finance announced a potential increase of tens of billions to public accounts: R$20.5 billion in 2025 and R$41 billion in 2026 and, furthermore, in statements to the media, defended the increase in the IOF as an eminently revenue-raising measure, necessary to achieve the fiscal target”, observed the minister.

Moraes emphasized that, since the case involves an autonomous decree from the President of the Republic, if the parties considered the measure unconstitutional, they should have filed a lawsuit with the STF, as the PL did, without the application by the National Congress of a “mechanism provided for the control of possible excesses by the Executive in the exercise of regulatory power”.

Financial impact

The minister stated that the financial impact disclosed by the government's economic team with the tax increase raises"serious doubts about the nature" of the measure. He warned that, if it is demonstrated that the increase in tax rates was made for purely revenue-raising purposes, it would be characterized as a misuse of purpose and, consequently, the measure would be unconstitutional.

“The financial impact reported by one of the applicants points to the existence of serious doubts about the diffuse nature of the measure, which affects various economic sectors indiscriminately, without attention to any measurement relating to the purposes required by extra-fiscality”, he noted in the decision.

If the decrees that increased the IOF are compromised by a misuse of purpose, the minister pointed out, they would end up “violating the principle of proportionality and tax precedence”.

“The Judiciary, therefore, must exercise judgment in verifying the accuracy of the exercise of administrative discretion in light of the principles of public administration, verifying the reality of the facts and also the logical coherence of the administrative act with the facts,” he stated.

Judicialization of IOF

On Tuesday, the 1st, the Lula government filed a lawsuit with the Supreme Federal Court to try to keep in force the decrees that increased the IOF. The decision was made by President Luiz Inácio Lula da Silva, after an assessment by the Attorney General's Office (AGU).

The decrees were overturned by Congress last week, in a defeat for the Lula government, which was counting on the increase in the IOF to cover the deficit in public accounts.

Jorge Messias, Minister of the Office of the Attorney General, stated that the National Congress could not have suspended “in any way” the presidential decree that changes the rules for collecting the IOF. “Considering that the Declaratory Action of Constitutionality aims precisely to preserve the integrity and soundness of the act carried out by the head of the Executive Branch, the logical conclusion is that this decree would remain valid. Therefore, it could not have been, in any way, suspended by an act of the National Congress,” he said.

On Wednesday, the 2nd, Lula defended the government's decision to appeal to the Supreme Court. According to him, the government's mistake was not in taking the case to court, but in failing to comply with the agreement reached between the government and the leadership of Congress at the house of the Speaker of the Chamber of Deputies, Hugo Motta (Republicans-PB), last month.

“If I don’t appeal to the Judiciary, I will no longer govern the country,” said the president, who described Motta’s decision to schedule a vote on the issue without prior agreement as “absurd.” “If I don’t go to the Supreme Court, I will no longer govern the country. That’s the problem. Each monkey in its own tree. He legislates, and I govern,” he repeated.

Business entities such as the National Confederation of Industry (CNI), the National Confederation of Transport (CNT) and the National Confederation of Commerce (CNC) asked the Supreme Court to uphold Congress' decision. The request was filed in the same lawsuit filed by the Lula government.