By Ricardo Brito

Brazil’s President Luiz Inacio Lula da Silva walks on stage after giving a speech during the Blue Economy and Finance Forum (BEFF) at the Grimaldi Forum in Monaco, June 8, 2025. REUTERS/Manon Cruz/Pool/ File Photo Purchase Licensing Rights , opens new tab

BRASILIA, July 1 (Reuters) – Brazil’s government filed a lawsuit with the Supreme Court on Tuesday challenging Congress’ decision to overturn a tax hike on financial transactions, heating up tensions between the branches of power as the administration seeks ways to meet fiscal goals.

The government believes that lawmakers overstepped their constitutional powers and created legal uncertainty by reversing President Luiz Inacio Lula da Silva’s decree raising the so-called IOF tax, Solicitor General Jorge Messias told reporters.

Lula hiked the tax levied on certain credit, foreign-exchange and private pension plan operations in May as a way to boost revenue and limit spending freezes needed to comply with the government’s fiscal framework.

The move, however, sparked immediate backlash from lawmakers, who said they would not approve the tax hikes and last week dealt the government a major blow by ultimately nixing the decree.

“If we hadn’t made this move, we would be allowing interference from one branch of government into another,” Messias said about the lawsuit. “Our approach is strictly legal, not political.”

The government had estimated that the IOF hike, already scaled back from an initial proposal for even higher rates, would generate an additional 12 billion reais ($2.20 billion) in revenue this year.

Deputy Finance Minister Dario Durigan said earlier on Tuesday that the measure, along with some other fiscal proposals put forward by the government, would ensure compliance with the fiscal target this year and next.

Latin America’s largest economy aims to eliminate its primary deficit in 2025 and deliver a primary surplus of 0.25% of gross domestic product in 2026, though economists have voiced skepticism about its ability to reach those targets.

“The reversal of the decree ends up affecting the economic and tax policy under responsibility of the head of the executive branch, and leads to a violation of the principle of separation of powers,” Messias said.

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