On October 5, following the opening round of Brazil’s general elections, the nation’s financial markets surged into a state of euphoria. Struggling under the weight of high sovereign debt and sluggish economic growth, investors have grown increasingly desperate for political leadership capable of curbing runaway budget deficits, implementing sweeping deregulation, slashing taxes, and potentially privatizing state-owned assets. After nearly four years under left-wing President Luiz Inácio Lula da Silva—widely known as Lula—whose administration has moved slowly on market-friendly overhauls, investors are pinning their hopes on a right-wing resurgence to unlock bold economic reforms.
That shift toward the right may well be the reality Brazil faces. In the legislative contests, the far-right Liberal Party captured substantial gains, securing its position as the single largest faction in both the Senate and the Chamber of Deputies. Meanwhile, in the presidential race, Flávio Bolsonaro—the son of controversial former President Jair Bolsonaro—edged past the aging incumbent Lula, leading by nearly two percentage points in the initial round of voting. While Lula has repeatedly demonstrated an impressive capacity for political comebacks, Flávio Bolsonaro enters the upcoming October 25 runoff as the clear favorite.
Yet, a closer examination of the country’s fiscal landscape reveals that even a victory for Bolsonaro offers dim prospects for the Brazilian economy. The specific policy proposals put forward by the far-right candidate fall far short of the rigorous fiscal consolidation program urgently required to reduce national debt and spur private investment. Furthermore, his overt determination to weaken Brazil’s democratic and political institutions introduces a volatile element of uncertainty that is bound to spook investors. While economic growth has unquestionably remained sluggish under Lula—whose administration has grappled with mounting public sector and household debt burdens—the country risks steering straight into a full-scale economic crisis driven by the authoritarian-inspired politics that a Bolsonaro government could unleash.
CRISIS IN THE MAKING
Brazil finds itself mired in severe economic distress. The nation’s sovereign debt-to-GDP ratio has ballooned to an alarming 83 percent, fiscal deficits leave virtually no maneuvering room for additional government spending, and persistently high interest rates continue to punish both consumers and commercial investors. Compounding these domestic pressures, the ongoing conflict involving Iran has driven up global fuel prices and the cost of other essential goods, heavily weighing on household balance sheets that were already severely strained by high debt loads. This leaves millions of Brazilians searching desperately for leadership capable of alleviating their daily economic hardships.
This precarious predicament has been years in the making. Prior to the election of Jair Bolsonaro in 2018, his predecessor, President Michel Temer, enacted a strict constitutional spending cap designed to contain Brazil’s runaway fiscal trajectory and prevent successive governments from altering spending ceilings to suit political expedience. However, Jair Bolsonaro repeatedly circumvented this cap, successfully convincing Congress to amend the constitution to accommodate increased expenditures. In exchange, the executive branch effectively surrendered control over the national budgetary process to an increasingly assertive legislature.
Consequently, Lula inherited a deeply compromised fiscal system that offered very little room for structural adjustment, and his administration made minimal headway in rectifying the underlying issues during his term. The resulting high budget deficits and persistent inflation forced the central bank to aggressively hike interest rates. These steep borrowing costs subsequently damaged household financial health and depressed overall domestic investment and economic growth.
PROMISES, PROMISES
Should Lula manage to secure reelection, he would find it exceedingly difficult to introduce new fiscal reforms or implement effective growth-oriented measures. Although he has pledged to curb spending and proposed a comprehensive overhaul of Brazil’s complex tax system to help expand the budget surplus and reduce public debt, the political reality in Congress presents a formidable roadblock. The Liberal Party and its right-wing allies now command a majority of seats in both the Senate and the Chamber of Deputies, positioning them to effectively block any legislative agenda Lula might attempt to pursue.
At the same time, expecting Bolsonaro to fare better on the economic front is overly optimistic, if not entirely unrealistic. Throughout the campaign, neither candidate has offered granular details regarding their specific plans to rescue the economy. Instead, Bolsonaro has frequently spoken of "institutional reforms," signaling intentions to amend Brazil’s 38-year-old constitution to introduce greater flexibility into labor and environmental regulations, interfere with the independence of the Supreme Court, and grant a formal amnesty to his father, who is currently serving a prison sentence for leading a 2023 coup attempt.
Such steps are virtually guaranteed to drive away institutional investors, who rely on stable, predictable legal frameworks for an economy to function effectively. A government that actively undermines the judicial system and the supreme law of the land inevitably compromises the integrity of its economic policies, regardless of how sound those policies might appear on paper or how respected the technocrats drafting them might be.
Moreover, gathering the necessary political support to overhaul Brazil’s fundamental governance institutions would require complex compromises that could severely worsen the nation’s economic instability. Securing enough votes in Congress to advance Bolsonaro’s priorities—such as the two-thirds Senate majority required to remove a Supreme Court justice or the three-fifths supermajority in both houses needed for a constitutional amendment—would force the administration to trade major concessions with lawmakers outside its immediate coalition. These politicians would almost certainly demand substantial federal funds for their local constituencies in exchange for their legislative votes, directly widening the budget deficit.
At the same time, Bolsonaro’s far-right movement must focus intensely on holding together its newly minted coalition of regional governors, mayors, and voters. A core segment of this constituency consists of lower-middle-class Brazilians who climbed out of poverty during the commodity boom years two decades ago under Lula’s first two presidential terms. Having experienced stagnant income growth in the years since, these voters have gravitated toward the Liberal Party, though their political loyalty remains fragile. Most are self-employed workers navigating acute economic precarity. While both Bolsonaro and Lula are scrambling to win over these voters by promising targeted initiatives to boost incomes and relieve household debt, delivering such programs—if even feasible—would only exacerbate Brazil’s broader macroeconomic imbalances.
What Bolsonaro has revealed regarding his specific economic platform offers little reassurance. The Liberal Party has claimed it intends to reduce government spending by $40 billion, equivalent to roughly 1.5 percent of GDP, and deliver healthy primary budget surpluses—a measure of fiscal health excluding interest payments. Yet, the party has failed to explain how these savings would be achieved, and Bolsonaro has offered no substantive roadmap for reining in the accelerating rise of public debt. Ultimately, analysts doubt that Bolsonaro can deliver on these fiscal promises, particularly if he maintains his pledge to shield pensions and key social programs from cuts.
A fundamental flaw in the Liberal Party’s economic agenda is its lack of a viable strategy for cutting administrative costs. The platform proposes eliminating at least ten government cabinet ministries without providing any concrete estimates of the resulting financial savings. When Jair Bolsonaro implemented similar structural trims after taking office in 2019—abolishing cabinet positions and laying off civil servants—the moves had a negligible impact on overall fiscal outcomes. Additional campaign promises include reducing Brazil’s value-added tax, phasing out a tax on financial transactions, lowering levies on electricity and fuel, pouring $180 billion into infrastructure over four years, and constructing 2.5 million new homes. Rather than resolving Brazil’s deep-seated fiscal troubles, these proposals risk deepening them.
The same shortcomings apply to the remainder of Flávio Bolsonaro’s tax strategy. His economic advisers have openly stated their intention to repeal every tax introduced or increased under Lula’s finance minister, Fernando Haddad. Haddad’s tax adjustments were originally designed to shift the tax burden onto higher-income brackets, boost government revenues, and address structural inequalities within the tax system. While these measures contributed to a modest increase in public revenue, they ultimately fell short of generating full budgetary surpluses.
Bolsonaro has argued that these taxes stifle investment by disproportionately penalizing high-income earners, though empirical evidence supporting this claim is scant. Conversely, repealing these tax increases outright would severely worsen Brazil’s fiscal position. Basic calculations indicate that Brazil must improve its primary budget balance by approximately six percent of GDP—either through increased revenues, reduced spending, or a combination of both—simply to prevent its national debt from climbing further. This massive adjustment would need to be phased in over at least three years to give indebted households and firms time to adjust consumption and investment patterns, thereby avoiding a sharp recession. Slashing taxes without equivalent spending cuts would immediately reduce state revenues and drive up debt.
Brazil’s punishingly high interest rates present another insurmountable constraint. The central bank’s benchmark interest rate currently sits at 13.75 percent, an astronomical figure by Latin American standards that drives up borrowing costs across the entire economy. Public debt service payments alone consume roughly 8.7 percent of GDP. Bolsonaro would find it impossible to lower interest rates significantly without triggering a severe recession, meaning he would confront the exact same structural trap that has stymied Lula throughout his current term: navigating an environment with virtually no painless options for containing runaway debt.
AUTHORITARIAN ECONOMICS
Neither Lula nor Bolsonaro is ideally positioned to untangle Brazil’s deep economic knots. However, a decisive, institutional turn toward illiberalism under a Bolsonaro presidency would all but guarantee a full-scale economic disaster.
Flávio Bolsonaro has consistently avoided disavowing his father’s vocal praise of Brazil’s military dictatorship, which ruled the country from 1964 to 1985, and his Liberal Party maintains direct ideological links to the political forces that sustained that regime. Furthermore, Flávio has pledged to secure the release of his father and various political allies currently imprisoned for orchestrating an insurrection and a failed coup attempt in 2023. His brother, Eduardo Bolsonaro—a former Brazilian congressman likely to assume a prominent role in a potential Flávio Bolsonaro administration—has openly expressed deep admiration for Viktor Orbán’s illiberal governance model in Hungary, voicing a desire to adopt the "best practices" of a movement that systematically rewrote national constitutions, reshaped the judiciary, silenced independent media, and utilized other overt authoritarian tactics.
Although a direct return to military rule in modern Brazil remains unlikely, the historical precedent of the former authoritarian regime serves as a stark warning of the consequences if a Bolsonaro administration pursues its illiberal inclinations to their logical conclusion. During those two decades of military dictatorship, Brazil sustained unsustainable spending levels—primarily funneled into state-owned enterprises to preserve the regime’s political survival—which ultimately led to a sovereign debt default, corrosive hyperinflation, and skyrocketing income inequality. Six successive economic stabilization plans failed, and national growth stagnated for years.
Brazil is far from unique in this historical trajectory. No Latin American nation that transitioned from democracy to authoritarian rule over the past century has experienced positive long-term economic benefits from the shift. Conversely, countries in other regions of the world that achieved lasting prosperity following similar political transitions did so by moderating and liberalizing their governance structures during their economic ascent.
Ultimately, Brazil’s current rightward political shift mirrors a broader regional pattern. The common thread uniting Brazil with neighboring countries like Argentina, Chile, and Colombia is the crude libertarian worldview espoused by their respective far-right movements. These political forces consistently market a vision of citizens functioning as fully independent entrepreneurs liberated from the state. They pitch their platforms to voters who suffer from chronic employment instability and a lack of economic security, promising that deregulation will deliver widespread prosperity. Yet, this brand of populism rarely commands the sustained confidence of financial markets. Much like its regional peers, when the Brazilian far right claims it can resolve complex systemic challenges through institutional demolition and a threadbare economic agenda, it offers little more than empty promises.
