Congress kills financial tax bill amid early 2026 election clash

Throughout the day, leaders from the powerful centrist bloc known as the Centrão—including state governors—mobilized to rally opposition to the bill, which the government had expected would raise R$31.5 billion in revenue and generate R$15 billion in savings by 2026. The presidential palace attempted to mount a response but was ultimately defeated in an unusual manner.

The measure was effectively shelved when the Lower House passed, by 251 votes to 193, a motion to remove the bill from the agenda. This type of procedural motion is voted on before discussion of the bill’s content and, if approved, delays the vote. Because the provisional decree was set to expire on Wednesday, it was permanently dropped.

President Luiz Inácio Lula da Silva reacted on social media, arguing that the measure aimed to correct tax distortions. “Blocking this correction is a vote against balanced public finances and tax fairness. What’s behind this decision is a bet that Brazil will collect less revenue to restrict public policies and social programs that benefit millions. It’s a move against Brazil,” he wrote.

The likelihood of defeat had become clearer the day before, when Congressman Carlos Zarattini of the Workers’ Party (São Paulo) struggled to get his report approved by a joint congressional committee. After intense negotiations and revisions, which cost the government an estimated R$3 billion in revenue, the report was approved by just one vote. Citing the razor-thin result, Mr. Zarattini accused centrist parties of breaking a deal, singling out the Republicans, Brazil Union, the Progressive Party (PP), and the agribusiness caucus for voting against the bill.

House Speaker Hugo Motta (Republicans Party, Paraíba) tried to broker an agreement to pass the measure, but ran into resistance from key centrist leaders. The figure most strongly accused of working against the measure was São Paulo Governor Tarcísio de Freitas (Republicans), who denied any involvement.

“We felt very strongly the interference, purely political and electoral, of the São Paulo governor, who mobilized party presidents to change their stance on the provisional decree. Those of us who work for the best solution in each case and for meeting fiscal targets regret that a governor would use his position solely to prepare for an election campaign,” Mr. Zarattini said on the House floor.

Following controversy over the “shielding bill”, the Centrão and opposition lawmakers resumed strong anti-tax rhetoric to justify their rejection of the measure. Despite holding federal cabinet positions, parties like Brazil Union, the Progressive, and the Republicans ordered their members to vote against the bill. The Social Democratic Party (PSD), which had considered letting lawmakers vote freely, also instructed its members to oppose it.

Facing this unfavorable scenario, President Lula called a lunch meeting with leaders from the government’s congressional base, joined by Finance Minister Fernando Haddad and Institutional Relations Minister Gleisi Hoffmann. After the meeting, the government’s leader in the Lower House, José Guimarães (Workers’ Party, Ceará), said the administration might issue new decrees to make up for the revenue lost from the bill’s defeat.

Mr. Lula urged Congress to show “maturity” and criticized the use of the provisional decree for electoral purposes, in a clear jab at Mr. de Freitas. “If someone wants to turn this into an election issue, I can only say that it shows a staggering level of pettiness. Anyone can claim the proposal as their own. Any lawmaker can take credit for having voted in favor,” the president said.

Mr. de Freitas denied the accusation in comments to Valor. “I don’t interfere in these matters. We’re very focused on a number of issues here [in São Paulo],” he said.

In an effort to rally support, the government temporarily removed three ministers from their posts so they could vote in the Chamber: Tourism Minister Celso Sabino (Brazil Union, Pará), Sports Minister André Fufuca (Progressive Party, Maranhão), and Ports and Airports Minister Silvio Costa Filho (Republicans, Pernambuco). Ms. Hoffmann also sent messages to the Centrão parties controlling those ministries.

“If this bill fails, it will reveal a lack of public spirit [among lawmakers]. I appeal to all parliamentarians to walk with us in Congress today because this country is on the path to building social justice,” Ms. Hoffmann said.

Another strategy was to draw a comparison to the recent approval of the “shielding amendment,” when centrist parties and pro-Bolsonaro opposition lawmakers joined forces in a vote. The idea was to pressure opponents by labeling them as “enemies of the people,” but the tactic failed. Even after voting down the measure, most Centrão leaders refrained from making speeches, limiting themselves to brief, generic instructions.

Only Liberal Party leader Sóstenes Cavalcante (Rio de Janeiro) spoke forcefully. He congratulated the presidents of the main Centrão parties individually for voting against the bill. He said the move “shows, contrary to what many thought, that the center-right will be united in 2026” around whoever former President Jair Bolsonaro chooses to face Mr. Lula.