Brazil candidates focus fiscal plans on voter-friendly measures before runoff

As the final weeks of Brazil's presidential runoff campaign unfold, both contenders are emphasizing fiscal adjustment measures that are viewed as politically favorable, according to economists. President Luiz Inacio Lula da Silva's debt burden has increased by over 10 percentage points during his tenure, reaching 82.9% of GDP. The right-wing candidate, Senator Flavio Bolsonaro, has pledged a quicker fiscal adjustment, targeting a 1.5% of GDP improvement in the primary balance within 18 months.

However, his campaign has yet to outline how such an adjustment would be achieved. Lula's team has also committed to fiscal consolidation, though at a slower pace, ensuring that spending cuts would not disproportionately affect lower-income Brazilians. With Bolsonaro leading in polls by a slim margin, both candidates have steered clear of measures that could tackle the root causes of Brazil's fiscal challenges.

Economists agree that the main hurdle lies in the swift growth of mandatory spending and an increasingly rigid budget. While Bolsonaro's adviser, Daniella Marques, dismissed the idea of cutting social benefits, Lula's running mate, Geraldo Alckmin, argued that fiscal consolidation should focus on addressing campaign funding and excessive salaries in the public sector.

Neither campaign has addressed the more significant reforms needed to stabilize debt, according to Rafaela Vitoria, chief economist at Brazilian lender Inter. She emphasized that there is no quick fix and that the debate on structural measures is extremely difficult during an election campaign, as they are often unpopular. Gradual adjustment may be feasible, Vitoria added, but discussions on benefit indexation rules, mandatory spending, and overlapping social programs are likely to be deferred until after the election.