The political and legal calculation that Lula should make in the IOF case

From a legal standpoint, the Lula (PT) government should not face any difficulties in overturning the decision of the National Congress that suspended the decree of readjustment of the IOF – but, if it decides to take action in the Supreme Federal Court, it will have to deal with the political consequences. This is the assessment of José Eduardo Cardozo , former Minister of the Attorney General's Office and Justice and former federal deputy.

Article 153 of the Federal Constitution lists the responsibility of the Union for establishing taxes on “credit, exchange and insurance transactions, or those related to securities or bonds”. The federal government can also change the tax rates. According to those who advocate inciting the Supreme Court, therefore, the Legislature has invaded one of President Lula's (PT) powers.

“Congress cannot reassess the merits of the Executive’s actions, because this constitutes a violation of the principle of separation of powers” , Cardozo told CartaCapital . “There was a blatant situation of offense to the Constitution by Congress.”

Finance Minister Fernando Haddad (PT) agrees. In an interview with Folha de S.Paulo , he said that, according to a government lawyer, the Parliament's decision is “blatantly unconstitutional.”

Immediately afterwards, the AGU — which Cardozo headed in 2016 — was quick to inform that there is no decision on the matter. The Attorney General of the Union, Jorge Messias, will disclose the legal developments “at the appropriate time,” the note says.

As a rule, there is a ritual to be followed: Congress approves a law and the Executive regulates it. If the federal government exceeds the legal limits in this regulation, the Legislature has the right to suspend the act. Apart from this, says Cardozo, there is undue interference by deputies and senators in the autonomy of the President of the Republic — as is the case with the IOF.

Although the legal issue is indisputable for the former minister, one must consider the political risk of once again appealing to the Supreme Court against a political decision. The cost of adding yet another dose of tension to the already tense relationship between the Judiciary — notably the Supreme Court — and Congress is not trivial.

“If the Judiciary follows the Constitution, it will necessarily have to say that Congress’ decision is unconstitutional,” emphasizes José Eduardo Cardozo. “Then Congress will say: ‘once again the Judiciary is entering our sphere’. That’s a lie, it hasn’t entered any sphere. But it is a political decision by the president.”

With a fragile base and full of acts of 'infidelity' — parties with ministries gave 242 votes in the Chamber to overturn the IOF decree —, the calculation about taking the case to the Supreme Court will have to weigh the risk of impacting the next votes of interest to Lula, such as the exemption from Income Tax for those who earn up to 5 thousand reais.

All this in a scenario of growing unrest surrounding the pace of payment of parliamentary amendments and the repercussions of measures such as the one that increases the number of deputies to 531 — and with the 2026 election, the main objective of congressmen, knocking at the door.