MercoPress. South Atlantic News Agency

The pending fiscal adjustment dominates the final stretch of Brazil's presidential race

According to Brazilian press reports, they pressed the urgency of a fiscal adjustment given rising public debt

Brazil heads into the October 4 general election with a growing economy and unemployment at record lows, but with one debate dominating the campaign's final stretch: the cut in public spending that analysts and business leaders agree will fall to whoever wins, whether President Luiz Inácio Lula da Silva or Senator Flávio Bolsonaro.

Brazilians will elect a president, 27 governors, the entire Chamber of Deputies and two thirds of the Senate. If no candidate passes half the valid votes, a runoff follows on October 25. Alongside Lula, running with Geraldo Alckmin, and Bolsonaro, a senator for Rio de Janeiro for the Liberal Party running with Alfredo Gaspar, the field includes Augusto Cury, Ronaldo Caiado, Renan Santos and Romeu Zema.

Recent polls diverge and all fall within their margins of error in a prospective runoff. Quaest, for O Globo, surveyed 2,004 people between September 10 and 13 with a two-point margin: Bolsonaro 42% and Lula 40% in a runoff, and Lula 36% against 31% in the first round. BTG Pactual/Nexus, from September 11 to 13, with 2,003 interviews and the same margin, gave Lula 47% and Bolsonaro 46%. AtlasIntel/Bloomberg, released Thursday with 5,018 cases and a one-point margin, put Bolsonaro at 47.2% and Lula at 46.8%. In 2022, Lula beat Jair Bolsonaro by 1.8 points.

The economic debate was triggered by a dinner Lula hosted in late August at the Alvorada palace for some fifteen business leaders and bankers, including representatives of JBS, BTG Pactual, Itaú and Bradesco. According to Brazilian press reports, they pressed the urgency of a fiscal adjustment given rising public debt. That same day the government presented its 2027 budget bill, aiming for a primary surplus of 0.5% of GDP through, among other measures, cuts to the civil service payroll.

Figures vary by source. Official and private estimates put public debt at around 82% of GDP, while a Trading Economics projection for 2026 places it at 83.5%. The Selic rate remains high, with a BBVA forecast of 13% for this year after 15% in 2025. The Central Bank projects 2% growth for 2026; the IMF estimates 2.4% this year and 2.2% next.

Lula points to unemployment at 5.4% in July, inflation at 4.22% in August, a minimum wage rising above inflation, and the income tax exemption for those earning under 5,000 reais, which reached 15 million taxpayers and was offset by a 10% minimum rate for some 140,000 high earners. Even so, Datafolha measured 50% disapproval against 47% approval.

Two economists consulted share the fiscal criticism. Emerson Marçal, of the Getúlio Vargas Foundation, says growth “is losing momentum” and that “from a fiscal standpoint, Lula's government was extremely profligate.” Otto Nogami, of Insper, says “excess spending is a concern because it is one of the most important factors weighing on investment.” Marçal warns the next government “will have to make a strong fiscal adjustment.” Both candidates promise one, but neither has detailed how it would be financed, and there have been no televised debates between them.

Household debt is at unprecedented levels: 82% of homes owe money and a third have fallen behind on a bill. On Thursday, Lula announced a 15% increase in the Bolsa Família benefit from October, taking it from around 620 to around 715 reais a month for twenty million families; his economic team says it will be funded by cuts elsewhere.

On foreign policy, Lula points to the European Union-Mercosur agreement, though its benefits have been clouded by Brussels' ban on Brazilian beef imports. Washington applied a second round of tariffs, with so many exemptions that the impact is limited; the tension began in 2025, in retaliation for the coup trial of Jair Bolsonaro.