Lula Faces Direct Clash with Brazilian Congress After Tax Plan Rejected

Brazil’s President Luiz Inácio Lula da Silva is now in a direct confrontation with Congress after lawmakers overturned his plan to raise the IOF, a tax on financial transactions.

On June 25, 2025, Congress voted overwhelmingly to block the measure, with the lower house rejecting it by 383 to 98 and the Senate quickly agreeing.

This is the first time in decades that Congress has canceled a presidential decree, showing just how divided the government and lawmakers have become.

Lula’s government had hoped the IOF tax hike would bring in up to R$12 billion next year to help balance the budget and protect social programs.

The administration argued that the tax would mostly affect the wealthy and allow the government to keep its promise to exempt people earning up to R$5,000 a month from income tax.

However, many lawmakers, including some from Lula’s own coalition, opposed the plan, fearing it would hurt the economy or their political standing. After this defeat, Lula’s team took the issue to the Supreme Federal Court, claiming Congress went beyond its authority.

The legal dispute has only increased the tension between the executive and legislative branches. Lula’s popularity has dropped to between 24% and 28%, the lowest level of his three terms.

Rising living costs and the failed tax plan have fueled public frustration. Supporters of the government have criticized Congress on social media, accusing lawmakers of protecting the rich, while some legislators have tried to calm the situation by calling for more dialogue.

This conflict matters because without the extra revenue, the government may have to cut social spending, which could affect millions of Brazilians. The standoff is also shaping the run-up to the 2026 presidential election, as both sides try to strengthen their positions.

Investors and businesses are watching closely, as the outcome will affect Brazil’s economy and future policy decisions. It will also shape the country’s outlook in the coming years.

This article was produced by The Rio Times’ automated newsroom system. How we use AI · Report an error