Deal follows agreement between government and congressional leadership that also unlocked other priorities; however, concentrated legislative push ends without constitutional amendments finalized
Congress exempts from taxes foreign purchases up to $50 — Photo: Carlos Moura/Agência Senado
Brazil’s Congress voted to make permanent a presidential decree (MP) on Thursday (3) exempting foreign purchases of up to $50 from federal taxes—better known as the “blusinhas tax.” The move delivers on an agreement between President Luiz Inácio Lula da Silva (Workers’ Party, PT) and the presidents of the Senate, Davi Alcolumbre (Brazil Union of Amapá), and the Chamber of Deputies, Hugo Motta (Republicans of Paraíba).
Alongside the blusinhas measure, the talks also covered approval by the Senate’s Constitution and Justice Committee (CCJ) of proposed constitutional amendments (PECs) on public security and the six-day workweek.
The legislative process, however, was neither smooth nor fully complete. The public-security PEC, for instance, advanced only as far as approval of its main text, with three amendments still pending; the proposal isn’t expected to return to the floor until after the elections. The “blusinhas” vote, originally scheduled for Tuesday (1), required lengthy negotiations over compensation for affected sectors. There was also some expectation that the 6×1 proposal might reach the floor, though Alcolumbre had made no commitment to that effect.
The week’s results underscored both the administration’s ability to coordinate with congressional leadership and the limits of that coordination. The government managed to advance an agenda with strong political and economic appeal, while Alcolumbre and Motta delivered part of their agreement with Lula without committing to every subsequent step.
In the Senate especially, the partial progress of the two constitutional amendments showed that political agreement doesn’t guarantee floor approval. Still, concentrating votes during the “concentrated effort” week gave the government a measure of legislative visibility at a moment when it was rebuilding ties with leadership in both chambers.
The six-day workweek proposal cleared the CCJ and was sent to the floor under a special expedited timetable. The text cuts the maximum workweek from 44 to 40 hours and guarantees two paid days of rest, with no reduction in wages. A floor vote is now expected sometime between the first and second rounds of the elections.
The public-security PEC likewise advanced only partially. The CCJ approved the main text of the report by Senator Rogério Carvalho (PT of Sergipe) but left three amendments pending—among them a provision, since removed, that would have directed revenue from betting companies to public-security funds.
The blusinhas measure required even more prolonged negotiation, moving forward only after two days of talks over compensation for affected sectors. Its approval in both chambers stood as the week’s central legislative achievement. The Institute for Retail Development (IDV) said in a statement that it was “deeply concerned” about the measure’s passage, arguing that it restored “a serious asymmetry in the tax burden” between goods imported via foreign platforms and those manufactured in Brazil.
Beyond this package, Congress approved two additional provisional decrees during the week. One was the Move Brasil MP, launched in May alongside other initiatives aimed at audiences more sympathetic to the opposition.
It authorizes up to R$30 billion in financing to help taxi drivers and app-based drivers replace their vehicles and was expanded to cover school-transportation workers as well. After the loan program struggled to gain traction, the government had already extended the maximum financing term from 72 to 84 months and raised the maximum eligible vehicle price from R$150,000 to R$200,000.
Lawmakers also approved a provisional decree aimed at reducing case backlogs at the National Social Security Institute (INSS), capping off a week of concentrated legislative activity in which the government and congressional leadership advanced several proposals with significant political and social weight—even as some commitments were left for later.
Alexandre de Moraes’s request alleges abuse of authority and political targeting after André Mendonça unsealed a report citing messages from former Banco Master owner Daniel Vorcaro
Alexandre de Moraes — Photo: Brenno Carvalho / Agência O Globo
Supreme Court Justice Alexandre de Moraes has asked for fellow Justice André Mendonça to be investigated for alleged abuse of authority, administrative misconduct and impeachable offenses.
Moraes also accuses his colleague of compromising judicial impartiality and favoring political groups in investigations into Banco Master and fraud involving Brazil’s National Social Security Institute (INSS).
The request, sent to Supreme Court Chief Justice Edson Fachin, came two days after Mendonça unsealed a Federal Police report citing messages sent by former banker Daniel Vorcaro, Banco Master’s owner, to a contact attributed to Moraes. In the messages, Vorcaro sought to interfere with and obtain information about investigations that led to his arrest in November last year.
The episode triggered an unprecedented crisis at the Supreme Court, which has now intensified with the request for an investigation into Mendonça.
Mendonça did not immediately respond to requests for comment.
Call for investigation
Moraes used the so-called fake news inquiry, which he has overseen since 2019, as the basis for requesting the investigation.
In the decision sent to Fachin, Moraes said he ordered Federal Police Director-General Andrei Rodrigues on Tuesday (Sept. 1) to provide intelligence reports produced “in response to the need to document numerous irregularities and illegal acts” in the handling of Operation “Sem Desconto”, involving the INSS, and Operation Compliance Zero, involving Banco Master. The decision does not make clear whether the Federal Police produced the reports on its own initiative.
Moraes said the irregularities identified by the Federal Police indicated that Mendonça sought to “steer the production of evidence toward falsely accusing Supreme Court justices of crimes, expressly naming Justices Gilmar Mendes, Dias Toffoli, Luiz Fux, Alexandre de Moraes and Nunes Marques, as well as the prosecutor general and the director-general of the Federal Police.”
The information provided would also have shown a series of alleged irregularities, Moraes said, including the “usurpation” of the police authorities’ “control over the investigations,” improper handling of plea-bargain negotiations and the steering of investigations toward specific targets for political reasons. Those alleged targets included Moraes himself and Senate President Davi Alcolumbre (Brazil Union Party).
Evidence challenge
In addition to potentially leading to an investigation into Mendonça, Moraes’s request could result in evidence gathered in the Compliance Zero and Sem Desconto operations being invalidated.
Among other issues, Moraes challenges the chain of custody of the evidence — the set of procedures established under Brazil’s Code of Criminal Procedure governing how evidence collected in criminal cases must be handled, preserved, processed, stored and disposed of.
Moraes argues, for example, that measures ordered by Mendonça, such as granting early access to raw data extracted from devices before the Federal Police had filtered the material and verified its authenticity, breached the chain of custody and harmed “the criminal investigation, including by allowing several leaks.”
He said a Federal Police intelligence report found that Mendonça’s decisions in the two cases could, in theory, have amounted to “usurpation of the police authorities’ control over the investigations, with a clear loss of impartiality due to ‘growing indications of bias in the conduct of judicial oversight, reflected in increasingly intense thematic steering toward a specific investigative line,’ as well as a breach of the chain of custody of the seized evidence.”
Moraes also accuses Mendonça of acting for personal and political reasons. One indication, he argues, is that Mendonça allegedly steered the investigation toward particular targets, including Alcolumbre. Moraes also refers to himself in the third person in several passages of the decision.
“The Federal Police points to several actions by the reporting justice, André Mendonça, that, in theory, constitute administrative misconduct, impeachable offenses and abuse of authority, including the targeting of specific individuals for investigation for personal and political reasons, in an attempt to incriminate Justice Alexandre de Moraes and Senator Davi Alcolumbre,” one passage of the decision says.
Moraes says neither the Federal Police nor the Prosecutor General’s Office (PGR) accused him of committing crimes. He argues that Mendonça therefore sought to investigate him in an effort to uncover criminal offenses that could be used against him.
Fachin’s review
Shortly after Moraes’s order became public, Fachin requested information from Moraes, Mendonça, the PGR and the Federal Police about the report citing Vorcaro’s messages.
The measures are intended to establish the full circumstances surrounding the production of the report ordered by Mendonça on conversations found on Vorcaro’s phone that exposed his relationship with Moraes.
The chief justice wants to review all the information before submitting the report to the Supreme Court’s full bench to discuss what steps should be taken, including the possibility of opening an investigation into Moraes.
Among the information Fachin requested were details on compliance with the Judiciary Organic Law, any access to private documents or confidential information, and the circumstances surrounding a police operation. Fachin also wants clarification on the conditions under which Mendonça ordered the report to be produced.
Police presence
Before the crisis escalated, the court’s longest-serving justice, Gilmar Mendes, said he had suggested to Fachin that Federal Police officials be barred from working in justices’ chambers.
Mendes said such arrangements tend to influence the handling of investigations overseen by Supreme Court justices. He also said he considered such close relationships between investigators and judges inappropriate.
Four Federal Police officials currently work at the Supreme Court. Two are assigned to Mendonça’s chambers. Moraes is also assisted by one, while another works in the court’s security division.
On Thursday (Sept. 3), as he left the Senate chamber, Alcolumbre was asked about Moraes’s request concerning Mendonça. He said he was unaware of the decision.
“I don’t know anything about it. I don’t know what the decision was,” he said.
(Gabriela Guido contributed reporting.)
*By Tiago Angelo, Giullia Colombo and Mateus Coutinho — Brasília
Retailers Assaí, Casas Bahia, Dia and other industrial groups appear in investigation into alleged bribes to speed release of tax credits
Cash-and-carry retailer Assaí is among companies cited in the ongoing tax-credit investigation — Photo: Divulgação
São Paulo state prosecutors launched a new phase of Operation Icarus on Thursday (Sept. 3), targeting an alleged scheme involving retailers, manufacturers and service providers that illegally expedited the release of tax credits at the State Finance Department.
Documents obtained by Valor show that cash-and-carry food retailer Assaí, furniture, appliances and electronics retailer Casas Bahia, supermarket chain Dia and pharmacy chain Farma Conde are cited in the ongoing investigation. Prosecutors are examining allegations that bribes equivalent to 1% to 2.5% of the tax credits involved were paid through a retained lawyer, with the percentage varying by company.
Rumo, which operates in rail transportation and logistics, energy conglomerate Cosan, natural gas distributor Comgás, fuel distribution company Ipiranga, beverage group Ambev and Sony Mobile (electronics and mobile devices) are also mentioned as alleged beneficiaries of the scheme, which accelerated the release of credits related to ICMS-ST, the tax-substitution regime for São Paulo’s state tax on the circulation of goods and services (ICMS). Prosecutors are also investigating whether some companies paid to fabricate tax credits that did not exist.
Those companies were not directly targeted in Thursday’s operation. But an investigation is underway involving information from a plea-bargain agreement and access to public officials’ bank records, and prosecutors have been gathering additional information about the groups.
Operation Icarus is investigating an alleged scheme involving the fraudulent creation and release of billions of reais in ICMS tax credits in São Paulo state. The investigation began more than a year ago with pharmacy chain Ultrafarma and electronics and appliance retailer Fast Shop retail chains.
Law firm involvement
Most of the companies allegedly retained law firm Buttini de Moraes, which then arranged bribe payments to secure the release of tax credits in recent years, according to a São Paulo Public Prosecutor’s Office (MPSP) search-and-seizure filing obtained by Valor.
The law firm allegedly made cash payments in shopping-mall parking lots in São Paulo, with the money placed in archive boxes, as Valor’s website reported Thursday. The companies deny wrongdoing and say they were unaware of the investigation.
Thursday’s action included requests for the arrest of André Weiss, former executive director-general of tax administration at the State Finance Department, who held the position until May, and lawyer João André Buttini de Moraes, a partner at Buttini de Moraes, founded in 2018 and a central figure in the investigation involving the retailers.
Prosecutors believe Buttini handled most of the contracts under scrutiny to facilitate access to ICMS-ST credits that had been stalled at the Finance Department. The groups needed access to those credits to monetize them and remove them from their balance sheets, or to sell them to third parties.
The new phase of Operation Icarus involved the execution of 47 search-and-seizure warrants at homes, offices and businesses in the city of São Paulo, the metropolitan area, the state’s interior and Mato Grosso do Sul.
The court order also temporarily removed six suspects from public office, barred the 27 targets from contacting one another, required them to surrender their passports and prohibited them from leaving the country. Investigators are examining possible crimes involving a criminal organization, the offering and receiving of bribes, and money laundering.
The operation was carried out by the MPSP’s Special Action Group to Combat Cartels and Money Laundering (GEDEC).
“Investigators allege that the group turned a legitimate tax mechanism into an underground market in which not only taxpayers’ credits were traded, but also the administrative acts required for their recognition and release,” the MPSP said in a statement. “The improper payments allegedly corresponded to percentages of the tax credits, ranging from 1% to 10% in the cases under investigation.”
Assaí payments
Assaí appears in the investigation into alleged bribe payments intended to unblock, accelerate and approve ICMS-ST refund claims.
The retailer allegedly paid nearly R$53 million to lawyer João Buttini’s company BM Tax to obtain faster release of the credits, Valor found based on documents from the search-and-seizure filing.
The investigation also provides further details involving Casas Bahia and supermarket chain Dia. At all three companies — Casas Bahia, Dia and Assaí — the alleged bribes paid by Buttini ranged from 1% to 2.5% of the value of the tax credits.
The proceedings identified so far by the MPSP involve about R$800 million in Assaí credits under centralization procedures and R$97.7 million in two Dia cases cited in notes seized at the home of Paulo Siqueira Prado, a cooperating witness who has become a central figure in the investigation. Prado is a former regional tax chief at the Butantã tax office in São Paulo.
Prado provided information underpinning Thursday morning’s searches and the allegations involving the retail chains. He also said in his cooperation agreement that Buttini personally approached him at the Finance Department in 2023 to discuss the interests of taxpayer clients represented by his law firm.
Recordings of a 2023 lunch involving public officials described as operators of the alleged fraud scheme also include updates on tax-credit proceedings and references to the retailers.
Recorded conversation
Prosecutors are also investigating whether some companies paid to create fictitious tax credits that did not exist.
A recording of a lunch among public officials on July 27, 2023, was found on the cellphone of Artur da Silva Neto, the former head of the Finance Department’s tax division, who has since been removed from his position and arrested.
Those at the table included Silva Neto, cooperating witness Paulo Prado, André Weiss, a former directorf tax inspection, as well as a tax-inspection supervisor, an inspector from the Butantã tax office and a tax auditor.
At one point, the participants discuss the centralization of three major taxpayers and mention Via Varejo, now Casas Bahia, Dia and Sendas, or Assaí.
In the conversation, Silva Neto, whom investigators regard as the mastermind of the scheme within the Finance Department, asks Weiss which projects had begun with the chains. Prado then says one involved Via, or Casas Bahia, while work with Dia had “not even started yet.”
The tax supervisor then says that “a third one that is centralized there is Sendas.” Silva Neto responds that Sendas is the trade name and that “there’s an Assaí” — with the two referring to the same company.
“So I think we can sit down, check it and work it out,” Weiss says. Lawyers for Weiss, Prado and Silva Neto did not comment.
Alleged kickbacks
The MPSP’s ongoing investigation, based on documents gathered by prosecutors and Prado’s cooperation agreement, also says the cooperating witness told investigators he received from Buttini his share of an improper payment connected with services provided to Assaí.
“The payment was made through the issuance of 12 invoices to [poultry and food producer] Ad’oro S.A., simulating the provision of services by his company to that company,” the MPSP said in the court filing.
Investigators believe Ad’oro S.A. served as Assaí’s payment vehicle in its dealings with the law firm. Payments allegedly went from Ad’oro to BM Tax, which received R$37.5 million of the R$52.9 million Assaí paid in legal fees.
BM Tax’s revenue rose from R$5.5 million in 2019 to R$70.4 million in 2023.
The investigation also includes WhatsApp messages between a tax auditor and Prado referring to Assaí. In one June 2023 exchange included in the search-and-seizure filing, the auditor tells Prado that Buttini had sent him the filing for Assaí’s roughly R$800 million refund claim, which had been centralized under another auditor’s CNPJ registration.
Buttini allegedly asked that the case “stay in your NF,” or tax-audit unit, because they had already established “a good methodology with the team.”
MPSP documents also say public officials agreed among themselves on the bribes after ICMS credits were released.
“The setting of the bribe as a percentage of the amount to be refunded — 1% in Assaí’s case, 1.5% in the Via and Dia cases, 2.5% in the case of beverage distributor Metrópole, 3% as the lawyer’s share and 10% in the demand originating from the tax-substitution supervision unit,” prosecutors said in the filing.
“[This] is not an incidental detail: it demonstrates that the official act had a price,” the filing says.
Payment records
Based on a cross-check of 88,388 payment entries from 2018 through 2025, Buttini’s firm received R$140.6 million in service payments from Assaí, Via, Ipiranga and Metrópole, according to data in the court filing.
Assaí was the largest payer, at R$52.9 million, followed by Casas Bahia, with R$49.8 million of the R$140.6 million total.
In a statement, Assaí said it hired Buttini Moraes and BM Tax to provide tax and technology services because of the scale and complexity involved in processing tax data.
“The scope of the services included the processing of massive tax databases, the preparation of calculation records, the preparation of digital files required under the law and the regular administrative monitoring of the corresponding requests,” the company said.
Assaí also said it made no payments to public officials and neither requested nor authorized the offer of any improper advantage.
The company said ICMS-ST refunds are not a tax benefit, incentive or favor, but a right established by law and applicable when the tax is collected in advance. Assaí also said it had not been notified by authorities and had not been the target of any court measure or investigative action related to the operation.
Dia said it had not been contacted or notified by the MPSP and “does not condone any illegal practice or conduct that violates the law or its ethical principles”. The company said it acts with “integrity and transparency” and remains available to cooperate with authorities.
Casas Bahia did not comment.
In a statement, Buttini de Moraes’s defense said it was reviewing the investigation and the circumstances that led to the operation. It said that, “in full transparency and cooperation,” it would provide all necessary clarifications to the relevant authorities as soon as it had full access to the case files.
Analysts see risks for Lula and an opening for Flávio Bolsonaro, but say scandal-weary swing voters may prove harder to move
With a month to go before the first round of Brazil’s presidential election, the disclosure Tuesday (1) of messages involving Supreme Court Justice Alexandre de Moraes and former Banco Master owner Daniel Vorcaro is set to become a new factor in the race. The messages show the former banker seeking Moraes’s help and information about a confidential investigation that would eventually lead to Vorcaro’s arrest.
Analysts say the new Supreme Court crisis could energize the base of Liberal Party presidential candidate Flávio Bolsonaro and damage President Lula’s reelection bid. At the same time, candidates seeking to break through the country’s political polarization could also benefit.
Rafael Cortez, a political scientist and partner at consultancy Tendências, sees potential damage to Lula’s candidacy because an association between the president and the Supreme Court has increasingly taken hold in public opinion. Any negative effect, however, will depend on the opposition’s ability—particularly Flávio’s campaign—to deepen that perception.
“I see a potentially negative effect, but it is not a given. Strategically, Flávio’s campaign will have to exploit the issue politically so that voters do not turn the feeling that ‘the mainstream is corrupt’ into abstention, but instead into a vote for the opposition candidate.”
Cortez said the episode could hurt the government because some voters perceive an “informal alliance” between Lula and Supreme Court justices that has resulted in the persecution of Bolsonaro supporters. He therefore believes Flávio is likely to be able to capitalize politically on the issue, since his political movement was the first to embrace an anti-establishment message.
Cortez considers the election open and believes voter turnout will determine the outcome. In that context, the Supreme Court episode could motivate some voters dissatisfied with Lula who might otherwise stay home to turn out and vote. “The chances of major changes in the current landscape are low, but in a close election, small shifts are enough to change the outcome.”
The analyst said Lula faces a paradox: despite high disapproval ratings for his government, he remains ahead in voting intentions. Cortez said the explanation lies more in the opposition’s mistakes than in Lula’s own strength.
“If the government had positive approval ratings, we could say nothing would happen [as a result of developments in the Banco Master case at the Supreme Court], but that is not what is happening. The government’s position as favorite rests on shaky foundations and reflects voters’ lack of confidence in the opposition more than support for the president. He is leading, albeit by a narrow margin, despite voters not liking his government.”
With part of the electorate tired of polarization and lacking motivation to turn out, Cortez said the new allegations involving the Supreme Court could draw some of those voters away from abstention and toward Flávio. The political scientist noted that the senator is also the target of investigations related to the Banco Master case pending before the court. “What we are seeing, ultimately, is how the Supreme Court has become drawn into Brazil’s political radicalization. In voters’ eyes, the justices themselves have become political figures.”
Cortez said the episode could lead even some voters who have reservations about Flávio to conclude that criticism from Bolsonaro supporters about the court’s conduct may have some basis. “That could lead voters who disapprove of the government to migrate toward Flávio, making the race even more evenly matched,” he said. Lula’s campaign, Cortez added, could counter the issue by emphasizing its economic agenda, including a proposal to end the six-day workweek with one day off and its message of protecting lower-income Brazilians.
Other opposition candidates could also benefit if they manage to tap into anti-establishment sentiment among part of the electorate, Cortez said. “Those who are using criticism of the Supreme Court as an electoral strategy are likely to gain. Whether that will be enough to turn the race around is another matter.”
Graziella Testa, a political scientist and professor at the Federal University of Paraná, said previous political scandals suggest that the impact of cases like this depends less on the facts themselves than on which narrative ultimately takes hold and who comes to be seen as the “villain” or the “hero.”
Testa said Flávio, who has publicly maintained a confrontational stance toward Moraes, is likely to seek electoral dividends from the episode. She cautioned, however, that there is no automatic link between the case and any change in voting intentions.
According to Testa, criticism of the Supreme Court and some of its justices remains largely divided along partisan lines, particularly among groups on the right. “I don’t think someone who doesn’t know who they are going to vote for is worried about the Supreme Court. This is an issue that mobilizes committed right-wing voters,” she said.
When asked about a possible response from Lula, Testa declined to predict the campaign’s strategy. Based on the president’s previous statements, however, she said Lula would likely argue that the investigation should be allowed to run its course before responsibility is assigned. “He is very likely to say he will wait for the outcome to determine whether anyone should be held responsible,” she said.
Testa also sees little chance that the campaign will turn the case into an in-depth debate about institutional changes to the judiciary or the Supreme Court. Although proposals along those lines may appear in campaign rhetoric, she believes electoral dynamics are more likely to encourage the personalization of the conflict.
“The campaign is very short and needs very precise messages. I think it is more likely there will be a calculation around personalization because that generates more attention and tends to produce a greater electoral payoff.”
Christopher Garman, managing director for the Americas at Eurasia, said the episode is more damaging to Lula because it overshadows issues the government had hoped to highlight positively at this stage of the campaign. The damage may be softened, however, by a widespread perception that corruption is associated with both the Workers’ Party and Liberal Party candidates.
“Voters do not see either of them as credible on corruption. The case [involving Moraes and Vorcaro] does not directly affect President Lula. Still, it is bad for him because it brings a more negative agenda and heavy news coverage at a time when the Workers’ Party campaign wants to highlight measures it says have improved people’s lives. Since neither Flávio nor Lula has credibility on corruption, that softens the direct impact [on Lula], but negative news is bad for the incumbent,” he said.
According to Garman, the scandal hit just as the government was trying to highlight its accomplishments, including the vote on a proposal to end the six-day workweek with one day off. “Voters are pessimistic about the future. And you don’t want pessimistic voters when you are seeking reelection [as Lula is]. But I don’t see this as a factor that changes the probabilities in this election.”
The allegations also competed for attention with the revelation that Vorcaro transferred more money than Flávio had previously acknowledged toward “Dark Horse,” a biographical film about Jair Bolsonaro. Garman said “it is not easy for Flávio” to distance himself from that episode. At the same time, the Eurasia analyst sees broader institutional consequences. “The scandal deepens the crisis at the Supreme Court and puts enormous pressure on Moraes.”
Carlos Melo, a political scientist and professor at Insper, urged caution in assessing the electoral impact, saying “today’s scandal is forgotten when tomorrow’s scandal arrives.” In his view, the economy and public security are the issues that most concern voters, meaning other matters may carry only marginal weight.
Independent voters are unlikely to be mobilized by Tuesday’s revelations, Melo said, because there is already fatigue with successive waves of allegations affecting both sides. “Voters inside each political bubble defend their own side at any cost and attack the other. Independent voters, meanwhile, are starting to look at all of this with a certain disdain. Bombs keep being thrown from one side’s backyard into the other’s, and one ends up canceling out the effect of the other.”
*By Cristiane Agostine , Joelmir Tavares and Guilherme Carvalho , Valor — São Paulo
Current IPI is expected to be restricted to the Manaus Tax Free Zone and apply to just 5% of industrial goods
Tax lawyer Luiz Gustavo Bichara believes the government, “for political reasons and due to disorganization,” has not yet submitted the bill establishing the Selective Tax rates — Photo: Rogerio Vieira/Valor
The Lula administration’s economic team is considering publishing the list of products that will be exempt from the Industrialized Products Tax (IPI) on the same day it sends the provisional presidential decree (MP) on the Selective Tax (IS) to Congress. The IPI will be replaced by the Selective Tax in 2027. The tax will not disappear entirely, however, because it will still be levied on a small list of items to preserve the competitiveness of the Manaus Tax Free Zone (ZFM).
The two measures are eagerly awaited by companies because they can clarify exactly how these taxes will work next year. The consumption tax reform provides for the IPI rate to be reduced to zero starting in 2027 for all products except those produced in the ZFM. The IPI is expected to apply to only 5% of industrial products in the country, with the rate set at zero for the rest.
Supplementary Law 214, which regulates the consumption tax reform, requires the Executive branch to publish a detailed list of products that will have a zero IPI rate starting in 2027. The Federal Revenue Service has promised the publication since the end of May, but its release was delayed by the preparation of the Annual Budget Bill (PLOA) and uncertainties surrounding the Selective Tax.
The strategy now is to publish the list alongside the Selective Tax MP this month, in September. The goal is to link a measure considered negative by one faction of the government—taxing goods and services harmful to health or the environment through the Selective Tax—with a positive one: reducing the IPI rate to zero for about 95% of industrial goods produced in the country.
The decision has not yet been finalized, however. Part of the government’s political wing continues to argue that the Selective Tax MP should be postponed until after the elections, fearing its electoral impact, even though the tax would not represent an increase in the tax burden on the affected sectors. In that case, the IPI details could be released first and the Selective Tax later.
Changes to state and municipal transfers
On Monday (31), Finance Minister Dario Durigan reiterated that the rates proposed for the Selective Tax will take into account the same tax burden that the sectors affected by the new tax currently pay in IPI. “The Selective Tax projection takes into account the IPI burden that exists today, as I am negotiating with the sectors, maintaining the commitment not to increase the tax burden,” the minister said.
In the 2027 budget proposal, the government estimated that IPI revenue will amount to just R$5.497 billion, since the tax will be levied only residually to preserve the competitiveness of the ZFM, which generates tax credits. By comparison, the government expects to collect R$99.99 billion from the IPI this year, according to the latest bimonthly report on the assessment of revenues and expenditures in the 2026 budget.
The remainder of today’s IPI revenue was allocated for 2027 between the Selective Tax and the Contribution on Goods and Services (CBS), which will also replace the Social Integration Program/Contribution for Social Security Financing (PIS/Cofins) and the Tax on Financial Operations (IOF)-Insurance. The government estimates it will collect R$636.8 billion from the CBS in 2027 and R$42 billion from the Selective Tax. The figures may change depending on the rates ultimately set for the new taxes.
Revenue from the Selective Tax is much lower because, per the consumption tax reform, it applies only to products and services harmful to health and the environment, rather than to all products currently subject to the IPI.
Tax lawyer Luiz Gustavo Bichara, founding partner of Bichara Advogados, believes the government, “for political reasons and due to disorganization,” has not yet submitted the bill establishing the Selective Tax rates. “And now it will distort the purpose of the decrees, which should be issued in situations of urgency,” he said.
In his view, the delay in setting the rates creates legal uncertainty and makes it harder for companies to plan for next year. It also hampers efforts to attract potential new foreign investors. “How can someone establish themselves in a new country without knowing how much tax they will pay?” Bichara asks.
On the spending side, the near-elimination of the IPI will require the federal government to spend R$33.8 billion in 2027 to compensate states and municipalities for the end of the tax. The amount was also included in the 2027 budget proposal—equivalent to 0.2% of GDP.
The compensation will be necessary because the government shares part of IPI revenue with states and municipalities. In 2027, however, total IPI revenue will be replaced by the Selective Tax and the CBS, and only Selective Tax revenue will be shared with subnational governments, while CBS revenue will remain entirely with the federal government.
Because of that, the tax reform provides for compensation through a constitutionally mandated transfer to states and municipalities. To arrive at the R$33.8 billion figure, the government calculated the difference between what is currently transferred to states and municipalities through the IPI and what will be transferred through the Selective Tax. That difference became the budgetary compensation subnational governments will receive in 2027.
A government official told Valor that if the Selective Tax is significantly weakened during its consideration by Congress, compensation to states and municipalities will have to increase. Likewise, if the Selective Tax is strengthened, the amount will be reduced.
The R$33.8 billion transfer was classified in next year’s budget as a primary expenditure, meaning it is included in the calculation of the primary balance for purposes of meeting the fiscal target. At the same time, it was excluded from the year’s spending limit and classified as expenditure not subject to the cap.
Federal Police report says banker sought help from a justice before his arrest as court faces dispute over investigation
A Federal Police report made public Tuesday (1) indicates that Supreme Court Justice Alexandre de Moraes was the intended recipient of a series of messages from Daniel Vorcaro, the former owner of Banco Master. In them, the former banker sought intervention and details about the investigation that led to his first arrest, ordered last November. In one message, he allegedly asked Moraes whether he should leave the country. He also allegedly sought protection from the Federal Police and the prosecutor general’s office.
The Federal Police investigation began after a directive from Justice André Mendonça, who is overseeing the Banco Master case, instructing investigators to determine who received messages sent by Vorcaro. Mendonça requested that the prosecutor general’s office respond to the report. Prosecutor General Paulo Gonet—also mentioned in the document—then argued that the Federal Police report should be dismissed. Gonet stated that justices are not responsible for making accusations or “conducting pretrial investigations.”
The investigation revealed that the exchanges were on a former banker’s cellphone, with a contact named “Alexandre de Moraes BRASÍLIA.” The details had been sealed but were made public by Mendonça, who asked the Supreme Court to review the report in a public session.
Vorcaro asked in a message on November 15, “Were we able to do anything? Do you think I need to be out of the country by Monday?” Two days later, Judge Ricardo Leite of the 10th Federal Court in Brasília ordered the banker’s first arrest. The case was initially under seal in a lower federal court before being transferred to the Supreme Court.
The exchange indicates that Vorcaro suspected he might be arrested and knew parts of the investigation, even though the case files were not public. One indication is that the former banker already knew the case was before Leite, whom he referred to in one of the passages identified by the Federal Police. “Right in the week when I’m sorting everything out. That same Judge Ricardo?” Vorcaro asked on November 15.
Based on other messages attributed to the banker, he requested Moraes to intervene with Federal Police Director General Andrei Rodrigues and Prosecutor General Paulo Gonet. “Can’t we reverse this with Paulo or Andrei? This is really messed up,” Vorcaro allegedly told the Supreme Court justice on November 15 last year.
The former banker also allegedly sought legal guidance from Moraes. In one message, he said his defense team was considering filing petitions to determine whether there were ongoing investigations involving Master. He then asked whether the idea should be pursued. “I’m not going to make any move you don’t think would be productive. We’re in the dark.”
Another contact shortly before the decision resulted in his arrest. “Do you believe there’s any chance this will happen tomorrow morning?” Finally, on November 17, the day of his arrest, the former banker sent another message: “Any news? Were we able to find out anything or stop it?”
Federal Police investigators also identified nine occasions on which Moraes and Vorcaro allegedly met in person. The first meeting reportedly took place on March 13, 2024, and the last on Aug. 8, 2025. Investigators mapped the meetings through conversations in which other people referred to them.
The Federal Police report also says metadata from a R$131 million legal-services contract between Vorcaro and the law firm of Moraes’s wife, Viviane Barci de Moraes, identifies a username linked to the justice as the author of the last change made to the draft.
Messages show that Vorcaro treated the agreement with the law firm as a priority. In one exchange, dated March 15, 2024, the banker demanded urgent action after employees were late making one of the payments under the agreement.
In a message to Angelo Silva, the former banker wrote that it was the “most important contract we have. I asked you not to let this happen. Unreal. We’re going to have problems. Pay it now.”
The Master owner then sent another message to an employee identified as “Romy Banco Master,” saying payment to the firm could not be “a day late” because “it is the most important payment we have.” He added that the payment could be made “without an invoice” and completed later “however necessary.”
Investigators also identified a draft of a second proposed agreement between Vorcaro and the law firm of Moraes’s wife, valued at R$50 million. The document, dated May 2025, provided for the former banker to pay for the services by transferring ownership of two aircraft.
Viviane Barci’s law firm issued two statements. In one, it said the R$131 million contract had been submitted to Moraes for assessment of any potential conflicts or legal impediments. However, the firm denied that a R$50 million contract existed. “Banco Master’s proposal was not accepted, nothing was signed, and the original contract was terminated when the bank was liquidated, ending any relationship with the institution.”
Prosecutor general drawn into Master messages
Gonet is also mentioned elsewhere in the Federal Police report. Investigators said Vorcaro communicated with the prosecutor general through intermediaries, with contacts allegedly facilitated by lawyer Ciro Soares, who represented the former banker.
In conversations from March 2025, Gonet allegedly asked Soares to pass messages to Vorcaro saying he missed the former banker, and to offer compliments after plans for a trip to London were confirmed.
On March 15, 2025, Soares sent Vorcaro a photograph of himself with Gonet, along with a message asking the former banker to call because the prosecutor general wanted to speak with him. The report then records four voice calls between Vorcaro and Soares, each lasting a few minutes.
Days later, on March 28, the lawyer sent three messages that he said he was forwarding at Gonet’s request. In them, the prosecutor general allegedly wrote: “Great! I’m rooting for you guys!”; “I already miss you! I’m boarding a flight to Rome”; and “Send him this message.” Vorcaro replied: “Thank him very much for the affection. I miss him too, let’s arrange to get together.”
Soares then wrote: “He adores you.” “He’s going to London with us,” he added, before forwarding another message, again attributed to Gonet: “Great!!! I hope there’ll be cigars and Macallan!” Vorcaro replied: “Now we’ll need a cigar plantation and a barrel of Macallan hahaha.”
The following day, according to messages highlighted in the Federal Police report, Soares told Vorcaro that “Gonet asked whether his son can go to London with us.” The former banker responded positively: “Obviously.” The lawyer then forwarded another message attributed to Gonet: “You’re a machine LOL.”
According to the report, Vorcaro received a list from an employee containing names of people “to go to London with expenses paid by us.” The Master owner did not agree with the list but made an exception for “Pedro and Ciro,” whose expenses would be covered, an apparent reference to Pedro Gonet and Ciro Soares.
The event in London was a whisky tasting that the Federal Police director general also allegedly attended.
Justice sends dispute to full Supreme Court
In Tuesday’s decision to make the document public, Mendonça asked the full Supreme Court to consider the report in a “public and transparent” session. He is expected to formally submit the case for consideration next week. Supreme Court President Edson Fachin will then decide when to schedule it. Contacted for comment, Fachin did not respond.
Without mentioning Moraes, Mendonça suggested the existence of an alleged monitoring and influence network that might have been working to benefit Banco Master. He added that, based on the exchanges found by the Federal Police, “the natural progression of these proceedings is to the plenary of this Supreme Court, the sovereign body responsible for thoroughly examining the new evidence presented by the police in a strictly legal and technical manner.”
Moraes and Mendonça met to discuss the case before the Federal Police report was made public. People familiar with the conversation described the meeting as “very tense.” Moraes allegedly questioned whether Mendonça had allowed the Federal Police to investigate him and accused his colleague of steering the investigation. Mendonça, in turn, was said to have asked Moraes how he had learned that investigators were digging deeper into the case.
Prosecutor general seeks to invalidate police report
In his filing with the Supreme Court, Gonet asked that the Federal Police report be declared invalid. “The justice overseeing the case does not even have the authority to direct police action against targets he decides to pursue. At the pretrial stage, investigations are conducted by the judicial police, while the Public Prosecutor’s Office, as the prosecuting authority with exclusive power to bring criminal charges, may also seek evidence on which to base its conclusions.”
Gonet asserted that Mendonça was aware the investigation would involve officials eligible for direct trial by higher courts, including Moraes. “He knew Moraes was among them. He could not have failed to know that. The directive for the Federal Police investigation is dated August 24, 2026. By that date, the judge handling the case already possessed all the detailed material he needed in writing.”
Gonet argued that Mendonça actively sought evidence that Moraes may have been involved in wrongdoing. “Regardless of the extent to which the measure constitutes an investigation, it is undeniable that there was an examination of material in the case aimed at finding evidence of Justice Alexandre de Moraes’s involvement in unlawful acts.”
The prosecutor general further argued that by ordering investigative material to be examined regardless of which authorities it involved, Mendonça effectively imposed an investigation on Moraes. The result, he said, was a 218-page Federal Police report, “nearly 190” pages of which concern the justice.
Moraes, Mendonça, Fachin, the Federal Police and Vorcaro’s defense team did not respond to requests for comment.
*By Tiago Angelo, Giullia Colombo, Mateus Coutinho, Isadora Peron and Mariana Andrade, Valor — Brasília
Company seeks ANP approval to test underground CO2 injection in São Paulo using emissions from sugar-and-ethanol mills
Renan Lopes, chief financial officer (left); Tiago Homem, technology director; and Daniel Pedroso, CEO of EnduraCarbon — Photo: Leo Pinheiro/Valor
A company founded by former Petrobras and biofuel industry executives has asked the National Agency of Petroleum, Natural Gas and Biofuels (ANP) for authorization to test a project in west-central São Paulo that would capture and store underground the carbon dioxide emitted by the region’s ethanol plants. EnduraCarbon, founded a year ago, plans to capture the CO2 and inject it permanently underground, generating carbon removal credits for companies seeking to offset their greenhouse gas emissions.
The project became possible with the signing of Decree 13095 of 2026 on August 13, which regulates several types of carbon capture, transportation, and storage (CCS) activities provided for under the Fuel of the Future Law.
The decree made the ANP responsible for authorizing projects and regulating the sector. Under the rules, EnduraCarbon’s project falls under bioenergy with carbon capture and storage (BECCS), which uses carbon generated through bioenergy processing or biofuel production.
EnduraCarbon plans to develop a hub with underground carbon injection wells that would receive liquefied CO2 emitted by different mills. Ethanol plants currently release the CO2 generated during fermentation into the atmosphere. Those with biomethane facilities also emit CO2 from the biogas purification process, which separates methane from carbon dioxide.
Calculations by EnduraCarbon’s partners indicate that the hub would require an investment of R$1.5 billion if testing confirms its viability. It could store 1 million tonnes of carbon dioxide a year.
The company spent the past year developing the project and its business model while monitoring CCS technology regulation, CEO Daniel Pedroso said. One of the company’s five partners, Pedroso built his career at the ANP and Petrobras. At the oil company, he held several management positions and most recently headed its CCS operations before leaving with Tiago Homem, now an EnduraCarbon partner and director of projects and technology.
Since founding the company, the partners have studied historical geological and seismic data, including information from wells drilled in the rural areas of São Paulo state by Petrobras and Paulipetro since the 1960s. Their goal was to assess the possibility of injecting gas into saline reservoirs in the state.
“We have been studying the Paraná Basin for CCS opportunities. We saw potential in the bioenergy industry, where we could contribute our expertise,” Pedroso said. The company’s research concluded that the broader Bauru region offers the best conditions for a project of this scale because of both its geology and its proximity to several ethanol plants in São Paulo.
EnduraCarbon has already signed an agreement with Usina São Manoel, located in the municipality of São Manuel, São Paulo, under which the mill will supply the project with CO2 and electricity cogenerated by burning sugarcane biomass.
“Ethanol plants generate biogenic carbon [with a short atmospheric cycle] through ethanol fermentation. There is also a wave of investment [by ethanol plants] in biomethane, which generates additional carbon dioxide,” explained Renan Santos, a former GranBio vice president who is now an EnduraCarbon partner and chief financial officer. The company’s other partners include geologist Renato Darros de Matos, formerly of Petrobras, and Alexsander Costa, formerly of GranBio.
Only one BECCS project is currently under construction worldwide: a project operated by corn ethanol producer FS in Lucas do Rio Verde, Mato Grosso. Scheduled to begin operating in September, the FS project will store carbon emitted by the company’s own plant and account for the removed carbon in the biofuel’s emissions footprint. This will allow FS ethanol to capture more carbon than it emits over its life cycle.
EnduraCarbon’s project is not tied to a single company. Because the hub will not be physically connected to the mills, the carbon will have to be transported there. The plan is to use trucks powered by biomethane, a biofuel with a much smaller carbon footprint than diesel, which the partner mills could supply themselves.
The company also plans to install and operate carbon dioxide liquefaction units at the mills. These units could use electricity cogenerated from sugarcane bagasse to power the liquefaction process, Pedroso explained.
“The project was designed to achieve scale and economic viability. We began talking with mills, and an opportunity emerged for a commercially viable project aligned with major CCS projects worldwide,” the chief financial officer added.
Once the ANP authorizes the studies, EnduraCarbon will have three years to drill wells and conduct testing. If the research confirms that the operation is viable and safe, the company will apply to the ANP for storage authorization. Under the law, companies may operate carbon injection wells for 30 years, with the option of a 30-year extension.
According to Pedroso, the carbon credit market is expected to develop in the coming years as demand grows among technology companies and data centers, allowing credits to be sold under long-term contracts.
Market participants are concerned about how internationally transferred mitigation outcomes (ITMOs)—certificates equivalent to carbon credits that can be exported—will be regulated. The federal government is considering limits on export volumes to ensure an adequate supply of carbon credits for meeting national targets.
Santos said ITMO exports could attract foreign capital. “Because [BECCS] generates an engineered carbon credit [using technology], it is capital-intensive,” he said. According to Santos, the company is in talks with “institutional investors and large companies interested in advancing the climate agenda.”
Gross debt reaches 82.5% of GDP, highest since 2021, while federal companies’ shortfall widens nearly 50% through July
Tiago Sbaderlotto — Photo: Wenderson Araujo/Valor
Brazil’s general government gross debt, the main gauge of the country’s public debt burden, rose to 82.51% of gross domestic product in July, Central Bank data released Aug. 31 showed. It was the highest level since April 2021, when the ratio stood at 82.62%.
The debt-to-GDP ratio has risen 10.8 percentage points during President Luiz Inácio Lula da Silva’s third term. Lula is a member of the Workers’ Party (PT).
General government gross debt comprises the federal government, the National Social Security Institute (INSS) and regional governments. The ratio rose 0.6 percentage point in July, marking the seventh consecutive monthly increase. In nominal terms, gross debt reached R$10.9 trillion.
Debt drivers
The Central Bank attributed the increase mainly to nominal interest expenses, which added 0.8 percentage point to the ratio, and net debt issuance, which contributed another 0.2 point. Growth in nominal GDP partly offset the increase, reducing the ratio by 0.5 point.
The consolidated public sector — comprising the federal government, states, municipalities and state-owned companies — spent R$99 billion on debt interest in July.
Over the 12 months through July, nominal interest expenses reached R$1.15 trillion, equivalent to 8.67% of GDP. That was up from R$941.2 billion, or 7% of GDP, in the 12 months through July 2025.
Fiscal outlook
Goldman Sachs economist Alberto Ramos said in a report that debt is likely to continue rising given the Lula administration’s “expansionary fiscal stance.”
“The lack of spending control has severely undermined the credibility of the fiscal targets and contributed to an overheated and excessively indebted economy. In addition, a weak fiscal anchor has raised fiscal risk premiums, resulting in the de-anchoring of short- and medium-term inflation expectations,” Ramos said.
Rafael Rondinelli, an economist at MAG Investimentos, said the 10.8-percentage-point increase in the debt ratio under Lula reflects the “sharp increase in spending and the resulting need to keep interest rates at elevated levels.”
Brazil’s Selic base interest rate currently stands at 14%.
Banco Pine projects gross debt will rise to 83.3% of GDP by December 2026 and 87.9% by December 2027.
Gross debt has increased 3.9 percentage points so far in 2026.
State-owned companies
Brazil’s federal state-owned companies posted a record R$8.27 billion deficit from January through July, Central Bank data also released Aug. 31 showed. It was the largest nominal shortfall for the period since the series began in 2002.
The deficit widened 49.8% from R$5.52 billion in the same period of 2025. The Central Bank figures exclude oil giant Petrobras and state-controlled financial institutions such as Banco do Brasil and Caixa Econômica Federal.
Economists see the measure as an important gauge of how state-owned companies affect the public finances.
XP Investimentos economist Tiago Sbaderlotto expects state-owned companies at the federal, state and municipal levels to post a combined deficit of R$10.2 billion in 2026, equivalent to 0.1% of GDP, mainly “due to the performance of [Brazil’s postal service] Correios.” That would be the largest deficit in the Central Bank series.
Sbaderlotto estimates federal companies will account for roughly R$8.2 billion of the shortfall, with state and municipal companies contributing the remaining R$2 billion. XP therefore projects a primary deficit of R$48.2 billion, or 0.4% of GDP, for the consolidated public sector.
“The results of state-owned companies show a similar trend to previous years, with the deficit worsening as a result of a policy of higher spending. Correios is undoubtedly the state-owned company that causes the greatest concern, but we could see problems at other companies in the near future,” Sbaderlotto said.
Gabriel Uarian, chief analyst at Cultura Capital, said “the concentration of the shortfall, particularly at Correios, points to management weaknesses and increases the risk that new capital injections or government guarantees will be needed, putting pressure on the public finances and reducing fiscal room for maneuver.”
Last year, the company raised R$12 billion in loans from five financial institutions backed by federal government guarantees. The government’s 2027 annual budget proposal, submitted Monday, provides for a R$6 billion federal capital injection into the company.
As a share of GDP, the deficit at federal state-owned companies reached 0.11% in the first seven months of the year, the highest level since 2009, when it stood at 0.12%, with a R$2.13 billion shortfall.
Energy sector
Sara Paixão, a macroeconomics analyst at InvestSmart XP, also highlighted the financial condition of federally controlled energy companies, particularly Eletronuclear, which is facing difficulties related to construction of the Angra 3 nuclear power plant.
Still, Paixão said it is “important to emphasize that a significant portion of the state-owned companies reporting negative results perform strategic functions for the country.”
The Ministry of Management and Innovation in Public Services, Correios and Eletronuclear were contacted for comment but did not respond.
Profert provides R$10bn in federal tax credits for new fertilizer plants, along with sector support from BNDES
Brazil Potash CEO Matt Simpson — Photo: Rogerio Vieira/Valor
The incentives provided under the Fertilizer Industry Development Program (Profert), sanctioned last Friday (28), together with existing benefits under the Manaus Free Trade Zone, could ease part of the multibillion-real cost of the Autazes Project—but they don’t eliminate the need for an extra financing “push” to make the potash mine planned by Brazil Potash in Amazonas viable.
Profert provides R$10 billion in federal tax credits for new fertilizer plants, along with sector support from BNDES.
In an interview with Valor, Brazil Potash CEO Matt Simpson estimated that Profert and Manaus Free Trade Zone benefits could generate savings of up to $190 million in tax breaks. Even so, the project will still need to raise between $300 million and $400 million in equity to secure financing.
According to Simpson, the project’s main challenge today is putting together the financial structure needed to begin construction. The company has been working on a mix of debt, investor contributions, tax incentives, and infrastructure contracts to make an estimated $2.5 billion investment possible.
“An operating license and a mining concession [issued by the National Mining Agency] will still be required after construction, but today the priority is bringing together the resources needed to get the project off the ground,” he said.
As part of this effort, the company expects greater involvement from government-backed institutions in financing the fertilizer sector. Simpson said participation from entities such as the Brazilian Development Bank (BNDES) could boost international investors’ confidence in projects considered strategic for reducing Brazil’s dependence on imported potash.
“It would be very welcome to see the Brazilian government participate, whether through BNDES or other institutions,” the executive said. “It’s not so much the size of the investment that matters, but the fact that the government has a financial stake in these fertilizer projects. That gives international investors comfort that the project is effectively backed by the Brazilian government and helps address any challenges that may come up,” he said.
Simpson said he has already held some talks with government-affiliated institutions but declined to provide further details.
The company expects to begin commercial potash production by the end of 2030, though the timeline remains contingent on the pace of fundraising for construction. Simpson said the project was designed to produce 2.2 million tonnes a year initially, equivalent to roughly 17% of Brazilian consumption.
Even without having begun major construction, Brazil Potash has already committed 91% of its planned output through long-term take-or-pay contracts. The agreements, running 10 to 17 years, were signed with Amaggi, Swiss distributor Keytrade, and Kimia, which have committed to purchasing minimum volumes of potash at market prices.
For farmers, potash won’t necessarily get cheaper simply because of domestic extraction. Simpson said the plan is to sell the raw material at market prices, but argued that domestic supply could act as a “shock absorber,” reducing volatility from geopolitical shocks.
That argument comes against a backdrop in which more than half of global potash production sits in countries under sanctions or at war—in this case, Russia and Belarus. During recent conflicts, prices have ranged from $280 to $1,200 per tonne. Brazil Potash sees potential to export the input to Latin America and the United States but considers serving the Brazilian market the priority.
Logistics is one of Brazil Potash’s main economic arguments for the project. Simpson said transporting potash from Autazes to producers in Mato Grosso will cost about $53 per tonne—less than half the $100-plus per tonne estimated for imported product that arrives at ports such as Santos and Paranaguá and is then trucked to the Central-West. The strategy is to use the return leg of barges that currently carry soybeans, corn and cotton and come back partially empty.
On the social and environmental front, Simpson said the main outstanding licensing issue is the 165-kilometer transmission line expected to connect the project to the Silves substation in Amazonas state.
This month, Supreme Court Justice Edson Fachin rejected a request to suspend lower-court decisions that had granted social and environmental approval for the Autazes Project. “The project, as the courts have recognized, is not located on Indigenous land,” Simpson said.
*By Danton Boatini Júnior, Globo Rural — São Paulo
Spending rises 40.6% in real terms as stronger finances, borrowing and electoral cycle drive infrastructure outlays
Samuel Kinoshita — Photo: Gabriel Reis/Valor
Combined investment by Brazil’s states and Federal District (Brasília) hit a record in the first half of this election year, reaching R$42.9 billion. The total was up 40.6% in real terms from the same period of 2025 and 13.9% above the previous high set in the first six months of 2022, when the current governors were elected.
The figures are even higher when financial investments — a budget category that states often also regard as investment — are included. Together, the two types of spending reached R$59.6 billion in the first half of 2026, up 55.5% from 2025 and 43.3% from 2022.
Investment alone rose in real terms in 22 of the 26 states compared with the first half of 2025. Sixteen posted growth of more than 30%, while 12 exceeded the nationwide average of 40.6%.
The 10 fastest-growing states, in order, were Rio Grande do Norte, Tocantins, Paraná, Minas Gerais, Sergipe, Pernambuco, Ceará, São Paulo, Alagoas and Santa Catarina.
In absolute terms, São Paulo and Minas Gerais led, with R$4.2 billion each, followed by Paraná at R$3.9 billion. Santa Catarina invested R$3.4 billion, just above Bahia’s R$3.3 billion.
São Paulo stands out even more in financial investments. The category totaled R$16.7 billion across the states and Federal District, of which São Paulo alone accounted for R$10.9 billion.
Of that amount, R$6.6 billion represented state contributions to public-private partnerships (PPPs), mainly for transportation infrastructure projects including the subway system, the Rodoanel beltway and the Santos-Guarujá tunnel.
The total also includes about R$1 billion for housing, of which R$700 million was invested through funds and had been classified as regular investment until 2025, said Samuel Kinoshita, São Paulo’s finance secretary. All figures refer to the first half of the year.
Kinoshita said the 2026 amount should be seen as the culmination of a process of rising investment.
Election boost
Alberto Borges, an economist and partner at Aequus Consultoria, which compiled the data, expects 2026 to become a new full-year record for state investment. He sees the election cycle as one driver, with spending supported by surpluses accumulated in previous years and by borrowing.
Luiz Paulo Budal, Paraná’s acting finance secretary, also pointed to the electoral calendar, which traditionally brings higher state investment.
“Paraná has pursued an expansionary policy since 2023, raising its investment levels and managing to deliver record figures.”
Budal said first-half investment reached all-time highs in several areas, including urban development, agriculture — particularly a rural roads program — transportation, education, health and public safety.
The pace at which projects are actually being carried out has also accelerated more recently, he said.
“Until 2024, Paraná would commit funds for investment but had more difficulty actually executing the spending,” he recalled.
Today, the state completes the execution of about 75% of the funds it commits, another record for its investment program, Budal said.
Paraná is expected to set a full-year investment record in 2026. Spending already executed should reach between R$8 billion and R$8.5 billion, well above the R$5.9 billion seen in 2025. Climate-related disruptions that could delay construction are among the risks, he said.
Pandemic legacy
The current annual record for investment by the states and Federal District was set in 2022. In the first half of that year, spending surged 167.9% in real terms.
Extraordinary federal transfers to address the effects of the pandemic lifted state revenues in 2020. In subsequent years, collections from the ICMS state value-added tax were also buoyant, rising 21.8% in the first half of 2021 from a year earlier.
After falling 7.1% in 2020, ICMS revenue rebounded as economic activity recovered from the worst of the health crisis and prices rose sharply. Those factors, combined with restrictions on payroll spending that remained in place through the end of 2021, helped pave the way for record investment in 2022.
Borges said stronger finances also allowed governors to improve their so-called “Capag” ratings, a measure of debt repayment capacity assigned by the National Treasury Secretariat (STN) that works much like a credit rating. Better scores have made it easier for states to obtain financing backed by federal government guarantees.
In 2020, only 10 of the 26 states and the Federal District had an A or B Capag rating, which qualifies them for federally guaranteed borrowing, Treasury data show. By 2025, that number had risen to 21.
“The improvement in Capag ratings opened the door to the credit market for the states, and investment volumes increased,” Borges said.
Borrowing surge
Revenue from credit operations reached R$26.5 billion in the first half of 2026, up 52.4% from the same period of 2025, which was already a relatively high comparison base, Aequus data show.
Such revenue had reached R$17.4 billion in the first half of last year, an 81.4% increase from R$9.6 billion in the same period of 2024.
Borges said investment has also been supported by financial reserves accumulated during earlier periods of stronger revenue.
Despite the economic slowdown, current revenue across the states grew 3.6% in real terms in the first half from a year earlier, after rising 2.3% in the same comparison in 2025.
Current spending also accelerated, climbing 4.4% this year after a 3.4% increase in 2025. Payroll expenses were the main driver, rising 5.3% after gaining 1.7% a year earlier, always in real terms and for the first half. Borges said the faster growth in payroll spending in 2026 also reflects the election cycle.
Aequus collected the figures from budget execution reports submitted by the states to the National Treasury. The survey considers expenditures already executed and revenues actually received. All amounts were adjusted for inflation using the IPCA consumer price index through June.
Fiscal risks
“The increase in state investment is surreal, and the data show that the movement has been widespread,” said Gabriel Leal de Barros, chief economist at ARX Investimentos.
He said the figures offer further evidence of how state finances have changed since the COVID-19 pandemic, while also reflecting easier access to borrowing by subnational governments.
From 2018 through 2021, average first-half state investment stood at R$13.6 billion, Barros noted. From 2022 through 2026, the first-half average jumped to R$34.1 billion.
“The problem is that the bill for these credit operations comes later, after the grace period on the financing ends,” Barros said.
That could put pressure on states with less budget flexibility, particularly as today’s investment boom creates higher mandatory spending in the future, he said.
Although conditions vary widely among states, Barros said the trend raises concerns about subnational finances in the coming years. A federal administrative reform that also covers states and municipalities could therefore play an important role, he argued.
São Paulo projects
In São Paulo, investment and financial investments combined reached R$15.1 billion in the first half of 2026, up from R$5.8 billion in the same period of 2025.
“The schedules of several projects now getting underway converged in 2026,” Kinoshita said. “When we look at the 2025 comparison base, it seems like a very sharp increase. It looked as though there had been a setback a year ago, but it was really just a matter of timing.”
The much higher level of financial investments — R$10.9 billion in the first half of 2026 versus R$3.4 billion a year earlier — reflects the greater role of PPPs in the current administration’s investment portfolio, he said.
The category also includes a R$2.9 billion contribution by São Paulo to the Federative Equalization Fund (FEF), required as part of the state’s participation in Propag, the federal government’s debt refinancing program for states.
Rio de Janeiro’s participation in Propag likewise led to a contribution to the FEF and increased its financial investments in the first half. The state Finance Department said spending in the category rose by R$1 billion, reflecting a contribution of the same amount to the fund.
Rio de Janeiro invested R$1.6 billion from January through June, up 3.6% from the same period of 2025.
São Paulo’s investment this year has been financed largely with state Treasury funds, Kinoshita said.
The state’s annual budget had provided for R$8.8 billion in borrowing proceeds in 2026. But because loan agreements have taken longer than expected to be finalized, only R$552 million was used in the first half.
“We had the capacity to use Treasury resources where funding from credit operations had initially been planned.”
The remaining borrowing resources included in the budget could still be used during the second half, Kinoshita said.
Paraná funding
Paraná’s investment has been financed predominantly with its own resources, including surpluses accumulated in previous years, Budal said.
The state invested R$3.9 billion between January and June, a record for the period and more than double the R$1.6 billion invested in the same months of 2025, which had previously been the all-time high.
“That is R$2.3 billion more in investment during the period, the largest absolute increase among the states.”
The privatization of power utility Copel also brought additional funds into state coffers that are now being directed toward investment, Budal said.
Those resources have allowed Paraná to increase spending even as ICMS revenue has remained nearly flat. Reflecting the performance of economic activity, the state’s collections from the tax have been broadly stable this year, he said.
Aequus data show that Paraná’s ICMS revenue rose just 0.7% in real terms in the first half of 2026 from a year earlier, after gains of 2.5% in 2025 and 13.9% in 2024.
Budal expects stepped-up enforcement measures to produce stronger ICMS revenue growth in the second half.
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