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By Ricardo Brito
BRASILIA (Reuters) -Brazilian Supreme Court Justice Alexandre de Moraes called a mediation hearing between the government and Congress on July 15 to address a dispute over a tax hike, according to a court decision seen by Reuters on Friday.
Moraes temporarily suspended both a presidential decree raising the IOF tax levied on some financial transactions and a subsequent congressional action to annul President Luiz Inacio Lula da Silva’s move, the document showed.
His ruling aims to ease tensions between the two branches of power, which escalated in recent weeks as they clashed over the tax on certain credit, foreign-exchange and private pension plan operations.
Lula hiked the tax 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 voted last month to nix his decree.
The Lula administration earlier this week filed a lawsuit with the Supreme Court challenging Congress’s decision to overturn the hike, saying that lawmakers had overstepped their constitutional powers.
Moraes wrote that suspending both moves and scheduling a mediation was a reasonable decision amid what he described as an "undesirable clash between the executive and legislative branches, with successive and repeated antagonistic remarks."
"The Constitution, more than determining the independence of the branches of power, requires harmony between them as a basic and inalienable principle of our democratic rule of law," he added.
Lower House Speaker Hugo Motta said Congress was open to institutional dialogue, while noting in a post on X that the court decision ultimately prevented the IOF tax hike, coming "in line" with what lawmakers had voted for.
Finance Minister Fernando Haddad welcomed the ruling, saying it aims to clarify the limits of each branch’s authority, "which is great for the country." The government will demonstrate that the IOF hike was aimed at correcting tax distortions, he added.
Brazilian markets showed little reaction to Moraes’ decision, with the local currency sliding 0.1% against the U.S. dollar in spot trading while benchmark stock index Bovespa climbed 0.2%.