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When democracy is in peril, routine elections become unstable: full of twists and turns, contingent outcomes and surprise reversals. In 2018, while the most popular candidate for the Brazilian presidency, Luiz Inácio Lula da Silva, was behind bars on charges later dismissed, Jair Bolsonaro was stabbed on the campaign trail in Juiz de Fora, helping to propel him to power at the head of a far-right coalition. In 2022, following the Covid meltdown and Lula’s release from prison, Bolsonaro’s re-election was prevented by a mere 0.8 per cent of voters: a margin which seemed to guarantee that national politics would remain dominated by the conflict between Lulismo and Bolsonarismo for the foreseeable future.
Two years later, in October 2024, these political blocs faced off once again in nationwide municipal elections, held across 5,569 districts, which took the temperature of the current Lula administration. The most hotly anticipated contest was in São Paulo, with an electorate of more than 9 million, pitting the incumbent mayor, Ricardo Nunes of the Brazilian Democratic Movement (mdb), against the Lula-endorsed candidate, Guilherme Boulos of the Party of Socialism and Liberty (psol). Yet what was expected to be a two-horse race was disrupted by the emergence of a third contender, almost unknown on the political stage. Pablo Henrique Marçal, an online celebrity and self-help guru, stole the media spotlight, paralysed the courts and came within 57,000 votes of advancing to the second round—reshaping the confrontation between the country’s electoral coalitions and casting their onward trajectory into doubt.
The municipal elections played out against the backdrop of a cautious and constrained Lula government. During his previous tenure, from 2003 to 2011, Lula’s strategy was to strike a grand bargain with the Brazilian ruling class. He refused to break with the neoliberal legacy of his predecessor Fernando Henrique Cardoso and made major concessions to the markets, while also passing ameliorative measures—cash transfers such as the Bolsa Família, cheap credit, increases in the minimum wage—to raise living standards for the masses. When he returned to office in January 2023, having forged a broad electoral coalition comprising the poorest voters and the big bourgeoise, his dealmaking skills seemed more essential than ever. He had promised ‘unity and reconstruction’ in the wake of Bolsonaro’s presidency, vowing to heal society, ease inequality and pull the country out of its international isolation. Yet from day one, the business sector was demanding an iron-clad commitment to austerity. Lula’s Workers’ Party (pt) had seen its number of parliamentarians sink to only 68 out of 513, while Bolsonaro’s Liberal Party (pl) had become the largest in the House with 99 seats. To effectively support any legislative proposal, Lula’s parliamentary coalition would have to be even broader than his electoral one.
Lula’s first port of call was to establish a dialogue with the conservative Speaker of the House, Arthur Lira. At that time, Lira was in charge of the so-called ‘secret budget’: a large pot of funds, approximately R$20 billion ($3.4bn) annually, which could be allocated to deputies to spend on projects in their constituencies, with minimal transparency or accountability. The Federal Supreme Court had ruled the secret budget unconstitutional, since it gave outsized power to the Speaker, but Lula agreed to retain it informally on a case-by-case basis, and pledged his support for Lira’s re-election bid, so long as he would not stand in the way of a R$145bn ($25bn) uplift in the 2023 federal budget. This allowed Lula to extend the Brazil Aid programme and launch the Bolsa Família 2.0, with a minimum of R$600 ($104) per eligible household and R$150 ($26) extra per child up to the age of seven—repaying the loyalty of his subproletarian base. Yet these concessions to Lira also reinforced the power of the conservative-dominated Congress, which had been growing ever since the legal coup against Dilma Rousseff in 2016. In August this year, Congress passed a R$53bn ($9.1bn) budget to be spent by the legislators in their constituencies in 2025, increasing congressional power over state spending and placing further restrictions on Lula’s fiscal policy over the long term.
Since then, Lula has remained unable to pass any legislation without making further compromises with the conservative majority in the House. He has even handed government ministries to forces like the Progressive Party (pp), a former bastion of the right that supported the military dictatorship, and the Republicans, an evangelical outfit with ties to Bolsonaro. In theory, bringing these parties on board means that Lula’s parliamentary bloc exceeds the quorum of three-fifths needed to pass constitutional amendments, safeguarding the President against the kind of mutiny that toppled Dilma. In reality, though, these tentative deals between the executive and the House could break down at any moment and imperil his position. Aware of this danger, Lula is reluctant to politicize any of his moves in Congress.
Even more damaging has been the government’s attempt to appease business interests—particularly the global financial sector—via the New Fiscal Framework (Novo Arcabouço Fiscal) drawn up by Fernando Haddad’s Ministry of Finance. This policy puts Lula’s weak reformism into an even lower gear. It limits future increases in state spending to 70 per cent of the gains in public revenue, and stipulates that they must not exceed a maximum of 2.5 per cent each year. By ensuring that spending grows at a slower pace than revenue, this enforces a gradual reduction in the size of the state—meaning, for example, that it may not be possible to raise the minimum wage in line with gdp growth, nor maintain the current constitutional floors for education and health spending.footnote1
Lula also pledged to abolish the primary deficit in 2024 and secure surpluses of 0.5 per cent and 1 per cent of gdp over the following two-year period. Meeting these pledges will require significant cuts, which the government is already beginning to roll out. It has reduced the 2024 budget by R$18bn ($3bn) and plans to save another R$30bn ($5bn) in 2025, with possible changes to unemployment benefits, salary uplifts for those on low wages, and the Continuous Cash Benefit—a monthly payment of the minimum wage for very low-income elderly people and those with certain disabilities. But even these swingeing measures are considered insufficient by the markets, and discussions are ongoing about cutting as much as R$40bn ($6.6bn) from the budget by 2026.footnote2