Moraes' signals that make a conciliation on the IOF crisis unpredictable

Although the decision by Supreme Court Justice Alexandre de Moraes on the IOF crisis seeks to “put the ball on the ground”, calming the heat around the issue, it is also harsh for both sides. Thus, the outcome of the conciliation attempt called for July 15th becomes unpredictable.

Moraes issued his decision within the scope of three actions:

• one from the PL against Lula's decrees that readjusted the IOF;
• one from the PSOL against Congress' 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 emphasizes that the State uses taxation for two purposes: collection , to supply the public coffers, and regulatory , to encourage or discourage certain behaviors or activities.

In the case of the IOF, Moraes emphasizes, the federal government can change the rates, with one caveat: the purpose of the adjustment is decisive in validating or not the president's decision. In other words: Lula has to justify the regulatory — or extra-fiscal — function of the increase.

From then on, there is a bad sign for the government's demand. Moraes stated that there is “well-founded doubt” about the purpose of the IOF decrees and said it is necessary to evaluate whether there has been a misuse of purpose.

This alleged deviation will be characterized, in the minister's view, if Lula used the IOF increase with the intention of raising revenue. To reinforce this possibility, the minister cited estimates from the Ministry of Finance about how much the tax adjustment would represent in terms of an increase in government accounts.

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) declared this Friday 4 that the focus was to combat tax evasion, but admitted that every measure like this has a revenue potential.

The clues to Congress

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

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

He stressed that the suspension is exceptional and should only affect normative acts that in fact exceed the regulatory power. Therefore, it does not serve 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 being unconstitutional,” he explained. “Acts issued by the Chief Executive that do not materialize his regulatory power are not subject to repressive control by means of a 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 of the above, in summary cognition, it is found that both the presidential decrees, due to serious and well-founded doubts about a possible deviation from the purpose for their issuance, and the legislative decree, due to it being an autonomous presidential decree , appear to distance themselves from the constitutional assumptions required for both normative genres”.

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

The news, a priori, is not good for the Planalto Palace because it prevents the new desired IOF rates from coming into effect. At the same time, Moraes' reservations about the decisions of both parties expose the uncertainty of the outcome of the conciliation hearing.