Key facts
- Brazil's leading presidential candidates, Luiz Inacio Lula da Silva and Flavio Bolsonaro, have differing approaches to fiscal challenges.
- Lula's team targets a primary surplus of 1.3% of GDP by 2030, prioritizing social programs.
- Bolsonaro's advisers aim for a 1.5% of GDP adjustment within 18 months.
- Both candidates' plans face challenges from mandatory spending growth, particularly on pensions and social benefits.
- Brazil's gross public debt has risen to 82.5% of GDP during Lula's current term.
- The country's nominal deficit is 9.3% of GDP, driven by interest payments.
Brazil's two leading presidential candidates, Luiz Inacio Lula da Silva and Flavio Bolsonaro, have presented distinct strategies for addressing the nation's fiscal challenges, though both have largely sidestepped detailing the politically difficult measures required to achieve their goals. The election is scheduled for October 4, with a potential second round on October 25.
Advisers for President Lula, who is seeking a fourth term, are discussing measures to stabilize public debt and create conditions for lower interest rates. His team reiterates a commitment to improve the primary balance to achieve an effective surplus of about 1.3% of gross domestic product by 2030, a gradual adjustment intended to protect social programs. However, Lula's own rhetoric has sometimes contrasted with this, suggesting a need to stop focusing on fiscal surpluses and strict controls to allow for government investment.
Privately, Lula's campaign is considering policy changes such as linking healthcare and other spending increases to revenue growth, reviewing social programs, and curbing the use of contractors to avoid payroll taxes. They are also studying reductions in tax breaks and higher taxation of top earners. A broad pay raise for civil servants is considered unlikely.
In contrast, Senator Bolsonaro's advisers have proposed an adjustment equivalent to about 1.5% of GDP within 18 months, advocating for a more aggressive fiscal shock to lower long-term borrowing costs. Their strategy centers on a new constitutional fiscal framework that would anchor spending growth to debt reduction, potentially aiming for a threshold of 65% of GDP. This approach faces skepticism due to the historical credibility issues of similar mechanisms and the challenge of curbing mandatory expenditures.
Bolsonaro has stated his intention to balance the books by cutting corruption and bureaucracy, and lowering taxes, rather than impacting minimum-wage workers or retirees. However, his campaign has also discussed securitization of delinquent tax credits, asset sales, privatizations, and refraining from filling civil servant vacancies upon retirement. Critics argue that his debt reduction targets may be unachievable without curbing mandatory spending, especially if he reverses tax increases.