Lula administration faces conservative Congress and market pressure

President Luiz Inácio Lula da Silva enters his fourth term facing significant political and economic challenges. The administration must navigate a conservative-leaning National Congress, where the Liberal Party is expected to hold majorities in both the Chamber of Deputies and the Senate.

Government allies and officials have launched an offensive against the financial market, accusing it of “blackmail, terrorism, and speculation” regarding fiscal adjustment demands. Officials, including Minister Guilherme Boulos, have argued that austerity measures should target privileges and tax exemptions rather than social programs. President Lula has publicly stated that he will not cut social programs.

Economic projections present further hurdles, with the gross debt expected to approach 87% of GDP and a nominal deficit of 8.5% by 2027. Additionally, the implementation of a new Value Added Tax (VAT) is expected to be among the highest in the world, ranging between 30% and 34%.