Brazil’s Lula faces spending rows as supporters oppose tougher fiscal measures

Less than a week after Brazilian President Luiz Inacio Lula da Silva's re-election, members of his government and Workers Party (PT) are drawing lines on potential tougher spending measures. This underscores the challenge of slowing Brazil's rising debt amid resistance from his political base. Institutional Relations Minister Jose Guimaraes said that discussing fiscal adjustment is not happening within their caucus.

Presidential Secretary-General Guilherme Boulos argued that any adjustment should rely on reducing Congress budget earmarks and tax breaks. The PT's executive committee stated that spending controls should not come at the expense of the poor. These comments have fueled concerns among investors who hope for signs that Lula's next administration will tackle Brazil's debt, which has climbed to 82.9% of GDP.

Former Treasury Secretary Jeferson Bittencourt said the government's lack of urgency in showing how it intends to address rising debt is driving up borrowing costs. The debate highlights the difficulties Lula faces in presenting a credible fiscal plan without alienating constituencies that helped secure his victory. The government is considering tightening Brazil's fiscal framework, though it would require Lula's approval.

For now, the government proposes a more modest change, aiming for a surplus of 0.5% of GDP next year.