Project Syndicate
Brazil Cannot Afford Bolsonaro’s Spending Cuts
Laura Carvalho and Joseph E. Stiglitz
“The damage would not be limited to pensioners and welfare beneficiaries. A reduction in social spending equivalent to 1.5% of GDP would be likely to wipe out 2.7% of GDP in the first year and 3.2% over two years, based on standard estimates of fiscal multipliers. That would be enough to turn a slowdown into a recession.
Simulations of much smaller cuts have found that lost growth drains tax revenue, leading to more cuts in a vicious downward spiral. The first to feel the pinch would be informal workers, street vendors, app drivers, and small business owners whose sales depend on customers having money to spend. Evidence from South America shows that spending-based fiscal adjustments have historically reduced economic activity and widened inequality.”
Brazil Cannot Afford Bolsonaro’s Spending Cuts
Oct 20, 2026
Laura Carvalho
and
Joseph E. Stiglitz
If he wins the October 25 runoff, far-right presidential candidate Flávio Bolsonaro plans to slash public spending by as much as 1.5% of GDP. These cuts could push Brazil into recession, hurt workers and small businesses, and drain tax revenue—all without solving the country’s debt problem.
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NEW YORK—Brazil faces a stark choice on October 25, when far-right candidate Flávio Bolsonaro and President Luiz Inácio Lula da Silva face off in the country’s presidential runoff.
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The economy looms large in any election, and here the two candidates offer vastly different strategies. While Lula has a proven track record, and Flávio does not, Bolsonaro’s approach mirrors that of his father, disgraced former President Jair Bolsonaro, who is now serving a 27-year prison sentence for an attempted coup. The son and his team have also said enough on the campaign trail to give us a clear idea of where Brazil would be headed under his leadership.
As economists who have long studied Brazil, we can be unequivocal: under Bolsonaro, unemployment will be higher, growth will slow, poverty will increase, and the middle class will be worse off.
Start with Bolsonaro’s promise to cut public spending by 1.5% of GDP. His team says Bolsa Família, Brazil’s cash-transfer program for households, would remain, but has not specified what would be cut. Given that the country’s budget is dominated by pensions, minimum-wage-linked benefits, health, and education, cuts of that magnitude could not spare them.
The damage would not be limited to pensioners and welfare beneficiaries. A reduction in social spending equivalent to 1.5% of GDP would be likely to wipe out 2.7% of GDP in the first year and 3.2% over two years, based on standard estimates of fiscal multipliers. That would be enough to turn a slowdown into a recession.
Simulations of much smaller cuts have found that lost growth drains tax revenue, leading to more cuts in a vicious downward spiral. The first to feel the pinch would be informal workers, street vendors, app drivers, and small business owners whose sales depend on customers having money to spend. Evidence from South America shows that spending-based fiscal adjustments have historically reduced economic activity and widened inequality.
The cuts would not even fix Brazil’s debt problem. About 53% of public debt is linked to the policy interest rate (Selic), and the country’s high interest rates owe more to inflation targets, a dysfunctional financial market, and currency volatility than to public spending. The primary deficit (spending excluding interest payments, minus tax revenue) has been near zero. Bolsonaro appears to believe that interest rates will magically fall dramatically without addressing the factors underlying them. Even if the Selic were to fall to 9%, which we consider unlikely under Bolsonaro, debt would continue to rise despite annual primary surpluses of 3% of GDP.
Compounding these problems are Bolsonaro’s proposed tax cuts. In a country plagued by extreme inequality, where those at the top pay a smaller share of their income in taxes, his proposed cuts could hamper long-term growth while worsening the country’s fiscal stance in the short run. Bolsonaro seems unaware of his policies’ macroeconomic consequences and, like Argentine President Javier Milei, does not care about correcting existing tax injustices.
The likely damage to Brazil’s economy and the slim prospect that Bolsonaro’s policies would reduce the deficit—which could actually grow if the downturn they induce is severe enough—did not stop markets from cheering his first-round victory. On the first trading day after the vote, the Ibovespa jumped 7.7% to a record high. But a stock-market rally is not the same as a growing economy, and it can quickly unravel in a recession or an institutional crisis, the risk foreign investors fear most.
But another future is possible. Three years ago, the market expected Brazil’s economy to grow by just over 1% annually. Instead, GDP grew by 3.2% in 2023 and 3.4% in 2024. Inflation, which peaked at 12.1% in April 2022, fell to 4.22% by August. Unemployment declined to 5.3% in 2026, while poverty and extreme poverty reached record lows. Even the stock market has performed well, rising by roughly 70% since January 2023.
These trends reflect the success of Lula’s economic policies. The new Bolsa Família lifted an estimated 6.5 million people out of poverty and extreme poverty. Real minimum-wage increases, associated with a larger wage share, boosted incomes for workers and pensioners. A progressive tax reform exempted low- and middle-income households from income taxes while raising the minimum tax rate for high earners, helping to reduce income concentration at the top. Yet primary deficits shrank to almost zero. And inflation would have fallen even further were it not for reckless wars by Russia and the Trump administration.
There is still much to be done. It won’t be easy, but Brazil can create fiscal space by eliminating tax deductions that benefit mostly the richest 10%, reining in parliamentary amendments, and raising the effective minimum tax on the super-rich.
That fiscal space should fund strategic investment in public transport, housing, and care infrastructure. These investments would make everyday life more affordable by reducing commuting costs and childcare expenses, while lower interest rates would reduce borrowing costs for families and entrepreneurs.
Over the past four years, Brazil has shown that growth and fairness can advance together. The choice facing voters on October 25 is whether to build on that progress or reverse it.
Laura Carvalho is Director of Economic and Climate Prosperity at the Open Society Foundations and Associate Professor of Economics at the University of São Paulo. Her research focuses on the intersection between macroeconomics and development economics, particularly the relationship between economic growth and income inequality. She wrote a weekly column for Folha de São Paulo, Brazil’s largest newspaper, and is the author of Valsa Brasileira: do boom ao caos econômico (Todavia, 2018).
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Joseph E. Stiglitz
Joseph E. Stiglitz
Writing for PS since 2001
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Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, is a former chief economist of the World Bank (1997-2000), former chair of the US President’s Council of Economic Advisers, former co-chair of the High-Level Commission on Carbon Prices, and lead author of the 1995 IPCC Climate Assessment. He is Co-Chair of the Independent Commission for the Reform of International Corporate Taxation and the author, most recently, of The Road to Freedom: Economics and the Good Society (W. W. Norton & Company, Allen Lane, 2024).
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