Brazil's Congress repeals Lula tax hike decrees

BRASILIA - Brazil's Congress voted Wednesday to repeal tax increases on international transactions decreed by President Luiz Inacio Lula da Silva, dealing a setback to his efforts to balance the budget of Latin America's largest economy.

It struck down in both houses three decrees signed by Lula in May that included raising taxes on credit card purchases abroad and money transfers to other countries.

Lindbergh Farias, leader of the ruling party in the Chamber of Deputies, criticised the move, saying that "the repeal of the decree will automatically mean a restriction on social programmes, harming the poorest."

But the push to overturn the decrees also came from parties within Lula's leftist government coalition, who voted against the taxes imposed to comply with the country's fiscal rules.

The repeal initiative was led by the party of far-right former president Jair Bolsonaro.

Representative Luciano Zucco, who authored the legislation, said Lula seeks to "comply with the fiscal rule without abandoning his obsession with uncontrolled increases in public spending."

The fiscal rule limits spending growth until 2026, the end of Lula's term as president.

Lula's government had argued the tax increases would primarily affect higher-income individuals and allow the budget to be balanced without cutting social investment.

The opposition countered that the taxes would fuel inflation, which stood at 5.32% year-on-year in May.