Government and House head toward an inevitable, bitter divorce

A streak of good news for the Luiz Inácio Lula da Silva administration came to an abrupt end on Wednesday, when Congress allowed the expiration of a provisional decree (MP 1303) that raised taxes on several investment products. Under Brazilian law, such decrees must be approved within 120 days or they lapse and cannot be reissued.

The expiration will force the government to cut spending this year and scramble to replace roughly BRL 21 billion (USD 3.92 billion) in projected revenue for 2026. More broadly, it highlights the widening rift between the Lula administration and the House, where anti-Lula blocs have become increasingly willing to sabotage the government.

This latest setback fits a familiar pattern of political brinkmanship by Congress.