Conciliation hearing ends without agreement and Moraes will have to decide on IOF

The conciliation hearing at the Supreme Federal Court on the crisis surrounding the IOF ended without an agreement between the Lula government (PT), the National Congress and two parties, this Tuesday 15th.

Senate Attorney General Gabrielle Tatith Pereira asked Justice Alexandre de Moraes—rapporteur for the cases on the matter—for more time for negotiations. The Attorney General's Office and the PSOL (author of one of the lawsuits), however, understood that a judicial decision would be the best way to resolve the conflict .

After the demonstrations, Moraes asked if reciprocal concessions would be possible to make conciliation possible. "Those present said that, despite the importance of dialogue and the initiative of this hearing, they preferred to await the court's decision," the meeting record states.

Therefore, it will be up to the rapporteur to issue a determination.

On July 4, the minister suspended the effects of three of Lula's decrees that increased the IOF tax rates. Moraes made the same decision regarding the legislative decree approved by the National Congress that suspended these executive actions.

In his ruling, the judge also ordered a conciliation hearing to be held on Tuesday. He summoned the presidents of the Republic, the Senate, and the Chamber of Deputies, the Attorney General's Office, the Attorney General's Office, and the plaintiffs in the lawsuits to participate in the meeting.

One of the lawsuits, filed by the PSOL, advocated overturning the legislative decree. The other, filed by the PL, challenged the IOF increase.

What Moraes has already said on the subject

Although the minister's decision on the IOF crisis sought to "put the ball on the ground," calming the heat surrounding the issue, it was also harsh for both sides.

Moraes issued his decision to suspend the decrees within the scope of three actions:

• one from the PL against Lula's decrees that readjusted the IOF;
• one from the PSOL against Congress's decision to suspend Lula's decrees; and
• one from the federal government against the decision of Congress.

After summarizing the arguments of each of the pieces, the minister emphasized that the State uses taxation for two purposes: tax collection , to supply the public coffers, and regulatory , to encourage or discourage certain behaviors or activities.

In the case of the IOF, Moraes emphasized, the federal government can change the rates, with one caveat: the purpose of the adjustment is crucial to whether or not the president's decision is valid. In other words, Lula must justify the regulatory—or extra-fiscal—function of the increase.

From that point on, the government's demands were looking bad. Moraes stated there was "well-founded doubt" about the purpose of the IOF decrees and said it was necessary to assess whether there had been a misuse of their purpose.

In the minister's view, this alleged misappropriation would be characterized as a case of Lula using the IOF increase for tax revenue purposes. Reinforcing this possibility, the minister cited estimates from the Ministry of Finance regarding how much the tax increase would represent in terms of an increase in government finances.

Alexandre de Moraes stated:

“The deviation of purpose, if effectively proven, is grounds for unconstitutionality , because if the normative act that regulates the tax is issued without observing that it is an extra-fiscal instrument, but rather with the purpose of achieving the fiscal target and settling public accounts, with a purpose other than that intended by the Constituent Power when delimiting the tax system, the existence of incompatibility of the normative instrument will be demonstrated”.

Finance Minister Fernando Haddad (PT) has already stated that the focus was to combat tax evasion, but admitted that every measure like this has revenue potential.

When referring, however, to the National Congress' decision to suspend the IOF adjustment, Moraes stated that if parties believe there is unconstitutionality in an autonomous decree of the president, they should file a Direct Action of Unconstitutionality — as Jair Bolsonaro's PL did — and not use an instrument designed to control excesses of the federal government in its regulatory power.

In other words: they should take legal action, not overturn the decree.

He reinforced that suspension is exceptional and should only apply to normative acts that actually exceed the regulatory authority. Therefore, it cannot be used to overturn the effects of a decree simply because Congress opposes its content.

"This mechanism, however, cannot be directed against autonomous decrees, under penalty of unconstitutionality," he explained. "Acts issued by the Chief Executive that do not materialize his regulatory power are not subject to repressive control by legislative decree."

The Federal Constitution, he continued, does not authorize Congress to suspend autonomous decrees that are not regulating a law issued by the Legislature.

Read the minister's conclusion:

“In view of all the above, in summary cognition, it is found that both the presidential decrees, due to serious and well-founded doubt about a possible deviation from the purpose for their issuance, and the legislative decree, as it falls within an autonomous presidential decree , appear to distance themselves from the constitutional assumptions required for both normative genres”.

In practice, the decision suspended both Lula's decrees that readjusted the IOF and the legislative decree approved by Congress to suspend the president's measures.

The news, initially, was not good for the Planalto Palace because it prevented the desired new IOF tax rates from coming into effect. At the same time, Moraes's reservations about the two parties' decisions exposed the uncertainty surrounding the outcome of the conciliation hearing.