Battle over sports betting threatens to derail Lula fiscal plan

A fierce lobbying push by sports betting companies is threatening to bring down the Brazilian government’s plan to raise revenues and hit fiscal goals after the lower house speaker backed off support for a deal he helped broker.

Lower house Speaker Hugo Motta abruptly warned Luiz Inacio Lula da Silva’s government on Thursday that he and congressional leaders had discussed moves to block the plan from taking effect, a reversal that briefly caused the country’s currency to weaken.

The chief source of Motta’s about-face was industry and congressional opposition to an increase in online betting taxes to 18% from 12%, according to three government officials familiar with the situation who requested anonymity to discuss sensitive matters.

The betting levies are a relatively minor piece of the package, which includes increased taxes on financial investments and reduced exemptions to close budget gaps that have generated deep investor concerns about Latin America’s largest economy.

The plan aims to raise about 10 billion reais ($1.8 billion) this year, with gambling taxes accounting for less than 300 million reais of the total, according to estimates from Finance Minister Fernando Haddad.

But opposition to the hike began almost immediately after Haddad outlined the plans following a Sunday meeting with Motta and Senate chief Davi Alcolumbre, according to one of the people.

It has intensified in the days since, with veteran lawmaker Ciro Nogueira — an influential senator who was chief of staff to former President Jair Bolsonaro — serving as one of the leaders of the push against the increase, two of the people said.

The 35-year-old Motta, an inexperienced leader who only assumed the speakership earlier this year, has been unable to withstand the pressure, in part because he underestimated how intense it would become, the people said.

A spokesperson for Motta declined to comment. Nogueira didn’t immediately respond to a text message seeking comment.

Brazil legalised online betting in 2018 but only approved a regulatory and tax framework in 2023, as part of Haddad’s larger effort to generate revenue and shore up the country’s fiscal situation. The government initially proposed an 18% rate before Congress reduced it to 12%.

The gambling industry is now arguing to lawmakers that increasing the tax would reduce already thin margins for companies, making it harder to compete with illegal operators and organized criminal groups.

“Raising the ‘gaming tax’ percentage from 12% to 18% will cause the sector’s tax burden to exceed 50%, which is unfeasible for any legal economic activity,” Brazil’s Association of Bets and Fantasy Sports said in a statement earlier this week.

Agribusiness and the real estate industries have also pushed back on the proposals, which would end tax exemptions for credit securities known as LCIs and LCAs that finance activities in their sectors. Those would now be subject to 5% taxation.

The latest proposals adjusted a previous plan to raise taxes on certain financial transactions that also drew opposition from business leaders and Congress.

The failure of the new plan would further intensify pressure on Haddad, who is facing mounting skepticism from investors about efforts to eliminate the primary fiscal deficit (excluding interest payments) this year.

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