A few months ago, President Luiz Inácio Lula da Silva described his Planning Minister, Bruno Moretti, as a Budget "magician", capable of finding money when the government needs it. Now, Moretti claims that Lula can strengthen public accounts without promoting deep spending cuts if he is re-elected.
Brazil's primary result — which excludes interest payments — would improve by two percentage points of GDP (Gross Domestic Product) over the course of a possible new term, moving from deficit to surplus, Moretti said in an interview. The strategy would be based on slowing the growth of mandatory expenses, continuing an effort that, according to him, is already underway.
And, faced with investors' skepticism about Lula's commitment to responsible public spending, Moretti is emphatic. "I don't think this is a smooth fiscal adjustment," he said from his office in Brasília.
Moretti, a member of the government with in-depth knowledge of the Brazilian Budget, took charge of the Ministry of Planning in March, after serving in the Civil House as special secretary for Government Analysis.
With just a month to go before the election, investors are still looking for details on how Lula intends to contain gross debt, which has increased by around 10 percentage points, to 82.5% of GDP, since he returned to power in 2023.
Improving the primary outcome, however, is only part of the work. This indicator excludes the cost of servicing public debt, one of the main concerns of investors at a time when high interest rates make financing increasingly expensive. Brazil lost investment grade in 2015, largely due to the deterioration of fiscal policy and, since then, successive presidents have faced difficulties in rebuilding public accounts.
Even with financial markets still apprehensive, the Lula government is taking a first step in this direction, said Moretti: the 2027 Budget proposal foresees a primary surplus of R$18.6 billion, or 0.13% of GDP.
This result compares to a projected primary deficit of 0.4% of GDP in 2026, which means that next year's Budget alone signals an improvement of more than half a percentage point of GDP. By the end of Lula's eventual new term, the government's goal is to achieve a primary surplus of 1.5% of GDP.
To reinforce public accounts, the government will need to adopt new measures to contain mandatory expenses, said Moretti, highlighting the need for more efficient policies and to keep spending growth in line with the fiscal framework. The details of these plans, however, still need to be evaluated by Lula, he said.
The president has not yet given concrete signals about what measures he would adopt in a fourth term. He follows a strategy he has used before: listening to different economic views among his allies before intervening and making a final decision.
One fiscal policy option, however, is off the table: making social security benefits deindexed from the minimum wage. "Social security is an instrument of social protection and poverty reduction," said Moretti.
More broadly, the government cannot lose sight of the need to show how its policies are improving Brazilians' standard of living, said Moretti.
“The era of gratitude is over,” he said. "People understand these things as rights, and our agenda needs to deliver improvements in people's quality of life."
"MODERATE" SUBSIDIES
The presidential race is tight, with polls showing that Lula's lead over his right-wing rival, Flávio Bolsonaro, has been shrinking due to factors including the slowing economy and the repercussions of corruption accusations against his son. The first round will be held on October 4, followed by a second round three weeks later.
With the election approaching, Moretti also hit out at another source of investor concern: Lula's increasing use of government-backed credit and other stimulus measures. The 2027 Budget reserves R$97.9 billion for loans subsidized through public funds.
Critics claim that these programs can increase public debt, although the operations are not included in the primary result nor are they subject to the spending limits provided for in the fiscal framework. Furthermore, they argue that these initiatives increase budgetary risks and stimulate demand at a time when the Central Bank is trying to slow inflation to the 3% target.
Moretti disputes the idea that the volume allocated to subsidized credit harms the debt trajectory, as some in the market claim. The resources are disbursed gradually, he said, which means they do not hit the public debt all at once.
"These are moderate subsidies for high returns," said Moretti.
The minister also rejected the assessment that these programs cause a consumption shock large enough to significantly hamper the Central Bank's fight against inflation.
Consumer inflation expectations can also be influenced by supply shocks unrelated to domestic fiscal policy, Moretti said, citing the El Niño weather phenomenon and swings in oil prices.
"There is an ideological prejudice against public spending of a social nature", he stated
