SAO PAULO/BRASILIA, Oct 9 (Reuters) - Brazil's government is weighing alternatives to shore up the federal budget, which could involve tweaking tax rates, after Congress killed a measure deemed crucial to hitting its fiscal targets, Finance Minister Fernando Haddad said on Thursday.

The government had expected a positive fiscal impact of 14.8 billion reais ($2.8 billion) this year and 36.2 billion reais in 2026 from the proposed changes to taxation of financial assets that expired on Wednesday without reaching a vote.

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Those figures, combining fresh revenue and spending limits, were seen as key to ensuring the government meets its goal of erasing its primary deficit this year and generating a primary surplus equal to 0.25% of gross domestic product in 2026.

Speaking to reporters, Haddad hinted the government could turn to tax increases that would depend only on President Luiz Inacio Lula da Silva. Senator Randolfe Rodrigues, head of the government's coalition in Congress, said on Wednesday that a change to the IOF financial transactions tax was an option.

The government's changes to the IOF tax earlier this year, including an initial proposal to impose a higher rate on funds invested abroad, sent shudders through financial markets and triggered a drawn-out fight with Congress.

Brazil's Supreme Court has ruled that the president has the authority to change certain tax rates, Haddad said, "and that gives us comfort to reach the end of the year."

Haddad also noted that talks with Lula over new measures always involve several alternatives.

"We have time, and we're going to use it to carefully evaluate each option," he said.

GOVERNMENT TO DISCUSS ISSUE NEXT WEEK

Later on Thursday, the Finance Ministry announced Haddad would no longer travel to Washington next week for meetings of the International Monetary Fund and the G20 so he could attend to engagements at home.

Some taxes in Latin America's largest economy are considered regulatory in nature and can therefore be changed unilaterally by presidential decree, such as the IOF, as well as import and industrialized products taxes.

Earlier on Thursday, President Lula said in an interview with a local radio station that he had asked his team not to worry about a setback in Congress.

He said next week the government will discuss how the financial system, especially fintechs, can "pay what it owes."

After intense backlash to raising the IOF rate this year, Lula's leftist government watered down the increase, which was implemented with the backing of the Supreme Court. To preserve the fiscal gain it had initially sought, it introduced the proposed investment tax changes that Congress failed to vote on.

"If the measure is rejected or loses validity, it's natural for the IOF to return to the table as an alternative. We have to close the gap," Senator Rodrigues said on Wednesday.

The main source of additional revenue in the rejected measure came from limiting how companies can use tax credits.

But the proposal, which changed the taxation system for financial investments starting next year, also increased charges this year on digital banks, payment institutions, and a popular form of shareholder remuneration in Brazil known as "interest on equity".

The government had also proposed raising taxes on online betting firms, but later agreed to drop that provision in an effort to secure passage of the measure.

On the spending side, the proposal included a program aimed at keeping students in high school in constitutionally mandated education spending and tightened rules for sickness benefits and payments to fishermen during environmental fishing bans.

https://www.reuters.com/world/americas/brazil-will-take-time-evaluate-alternatives-budget-haddad-says-2025-10-09/