It imposed a significant defeat on the government this Wednesday (8) by removing from the agenda the (MP) that provided for tax increases and adjustments in mandatory spending. The withdrawal request was approved by 251 votes to 193, on the last day of the measure’s validity, which in practice buries the text and frustrates the government’s plans to reinforce revenue collection and balance public accounts in 2026. The decision represents a direct setback for the president and the Minister of Finance, who had been working together in recent weeks to save the proposal.
Technicians from the economic team estimate that the defeat will open a hole of R$35 billion in next year’s Annual Budget Bill (PLOA), in addition to forcing spending blocks in 2025, including in parliamentary amendments. The government attributes the MP’s overthrow to a political movement by Centrão parties and the ruralist bench, which, according to Planalto’s assistants, intend to restrict Lula’s fiscal space in an election year. The rapporteur of the proposal, deputy Carlos Zarattini (PT-SP), stated that the result reflects an “anticipated dispute for presidential succession”, and cited the governor of São Paulo, as one of the names benefiting from the strain imposed on the government.
Before the vote, President Lula criticized the attempt to politicize the issue. “If someone wants to mix this with an election, it’s an extraordinary poverty of spirit. When they say they won’t vote because it will favor Lula, it’s not Lula who loses, it’s Brazil”, he stated. Minister Fernando Haddad also reacted, comparing Congress’s action to the fiscal policy of the previous administration. “In 2022, the government [de Jair Bolsonaro] used Congress to generally release the Budget and seek electoral advantage. Now they want to restrict the Budget to harm the government, but the country is the one who loses,” he said.
What the MP predicted
The measure was issued in June as an alternative to the decree that increased the (Tax on Financial Operations), partially overturned by the Federal Supreme Court (STF). The text intended to standardize the Income Tax rate on financial investments at 18%, including on cryptocurrencies, and increase the Social Contribution on Net Profit (CSLL) of fintechs and payment institutions from 9% to 15%.
The government estimated to raise R$20.9 billion in 2026, but, after concessions negotiated in Congress, the amount fell to R$17 billion. Among the changes promoted by Zarattini were the maintenance of the exemption on real estate and agribusiness securities (LCI and LCA) and the reduction in taxation on betting houses (bets), which continued at a rate of 12%, lower than initially planned.
In addition to revenue, the MP predicted savings of R$ 15 billion in expenses with measures such as tightening defense insurance rules, limiting sickness benefit via medical certificate and the inclusion of the Nesting Egg program in the education floor.
Consequences for the Budget
Without the MP, the government will have to review projections and cut spending to prevent the 2026 Budget from becoming illegal due to non-compliance with constitutional floors. The economic team is studying issuing decrees and ordinances to recover part of the revenue, but, according to technicians, there is no decision yet. According to the Ministry of Finance’s diagnosis, the blocking of expenses could exceed R$2 billion in 2025, even affecting funds from parliamentary amendments.
The defeat comes a week after the Chamber approved the project that expands the Income Tax exemption range for those earning up to R$5,000, one of Lula’s main campaign promises. However, the result of this Wednesday’s vote exposed the government’s difficulty in consolidating a majority in Congress and highlighted the deterioration of political articulation around its fiscal agenda.
