Brazil ties potential IOF tax rollback to approval of new measures to be unveiled next week

By Marcela Ayres

Brazil's government will unveil a new set of fiscal measures next week aimed at balancing public accounts, with their approval seen as crucial to revisiting a controversial IOF tax hike, said Finance Minister Fernando Haddad on Tuesday.

Speaking to reporters after a lunch with President Luiz Inacio Lula da Silva, the heads of the lower house and Senate, and several cabinet ministers, Haddad said the government is holding off on disclosing the details to first align with congressional leaders, with a meeting expected on Sunday.

Earlier, the minister had indicated that the measures could be unveiled after the meeting.

"The idea is to submit the measures starting next week," he said. "We are being very careful because we depend on the votes of Congress."

Negotiations follow intense backlash over a government decree that raised the financial transactions tax (IOF) on a range of credit, foreign exchange and private pension operations to increase public revenue, prompting lawmakers to mobilize to overturn it.

Haddad, who earlier in the day said the episode had yielded the "best possible outcome" by bringing together the executive and legislative branches to pursue more structural solutions for fiscal balance, emphasized after the lunch he needed the approval of at least part of the new package to reassess the IOF hike.

"The agreement is to present the measures and, if their legitimacy is recognized... I will have room to calibrate (the IOF)," he said.

Haddad had previously indicated that the package was superior to the one presented at the end of last year, when the government projected 70 billion reais ($12.39 billion) in spending restraints through 2026.

The minister also said the changes would likely involve submitting a constitutional amendment proposal, along with a bill and an executive order to Congress.

On Monday, he emphasized that any changes to the IOF tax would be tied to broader corrections of what he described as distortions in financial taxation.

Lula's government has said it aims to rebalance the federal budget by eliminating tax distortions and what it sees as unjustified tax benefits, rather than cutting spending, which has risen since he took office.

However, several measures to curb tax incentives have been significantly watered down or ignored by Congress.