Purchasing power cost Democrats and also splits the PT

by Andrea
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The split in the Workers’ Party over spending cuts in the government of President Luiz Inácio Lula da Silva (PT) could pressure the party into a situation similar to that experienced by the Vice President of the United States, Kamala Harris, in the American elections. While a wing of the PT, represented by the Minister of Finance, Fernando Haddad, tries to implement austerity measures to make Lula’s re-election viable in 2026, a more radical developmentalist group, represented by the president of the PT, Gleisi Hoffmann, bets on spending and developmentism in Brazil, issues that brought down Democrats in the United States.

The American voter’s loss of purchasing power is assessed as a determining factor in Kamala Harris’ defeat. If the Brazilian economy follows the same path, analysts estimate that the dispute for Palácio do Planalto in 2026 could also be influenced by this factor.

Just as North American President Joe Biden has been doing since 2020, the government of President Luiz Inácio Lula da Silva (PT) is betting on increasing public spending as a driver of the economy. The difference, however, lies in the fact that Biden was successful in stimulating his country’s economy in the post-covid-19 pandemic, with relatively controlled inflation, low unemployment and falling basic interest rates.

On the other hand, the inflationary effects of public spending were felt by the population and ended up leading to the election for the White House. This is because the end of the pandemic’s economic stimuli and inflation meant that the average American citizen had an increase of just 1% in their disposable income. per capita between 2021 and 2023. In Trump’s first term, the increase was 7%, according to Democratic economist Robert Shapiro. In other words, despite the macroeconomy doing well, inflation weighed on Americans’ pockets, reducing their purchasing power.

In the Brazilian case, the indicators show low unemployment, controlled inflation – -, and heated economic activity. But the government’s reluctance not to concretely cut spending could contribute to the basic interest rate, the Selic, continuing to grow. And that may not be enough to contain inflation.

This Wednesday (6), the . This means that it will be more expensive for citizens and the government to obtain credit in the market. In addition to this factor, official price inflation gained strength and rose 0.56% in October, compared to a rise of 0.44% in September. According to IBGE, the Broad Consumer Price Index has accumulated an increase of 4.76% in the last 12 months.

For the president of the PT, federal deputy Gleisi Hoffmann, the pressure to cut spending is “blackmail” from the financial market. She argued that “the only lack of control in the economy is not in government spending, but in the stratospheric interest rates that make public debt grow.”

“It is open blackmail by the financial markets, which create false and unrealizable expectations, manipulating the exchange rate, the stock market and the BC’s decisions. They bet against the country, and the ‘analysts’ in the media still support them”, said the PT member on “X”. But Gleisi does not present technical arguments and the Brazilian consumer is already feeling the increase in their supermarket bill, even with the economic results shown by the PT government.

The Minister of Finance, Fernando Haddad, has a vision similar to that of the parliamentarian. Belonging to a more pragmatic wing of the PT, Haddad and his economic team understand that spending cuts are necessary so that the fiscal framework stipulated by the government can be fulfilled. In a conversation with journalists on Wednesday (6), he stated that ministers are “aware” of the task of strengthening the fiscal framework.

The economic team agrees with the government, in order to maintain the fiscal target – zeroing the public account deficit in 2025.

“Ministers are aware of the tasks that lie ahead regarding the fiscal framework, predictability, sustainability, finances in the medium and long term,” said Haddad.

Despite his intention, the minister was frustrated by Lula this Friday (8) with the postponement of the decision on spending cuts. This Friday’s meeting between the president, economic team and ministers from the areas affected by the spending cut package ended without agreement, after three rounds of negotiations.

Purchasing power was a thorn in Kamala’s side and could be for the PT in 2026

The electorate’s perception of the economy is seen as essential for re-election. The spike in prices post-covid-19 pandemic impacted the production and distribution of several products in the United States. With the stimulus package approved by the government to face the health crisis, the economy suffered a supply and demand shock, causing inflation in June 2022 to reach 9.1%.

Although the index has decreased over time, reaching 2.4% in September, prices have not returned to pre-pandemic levels. This is because the slowdown in inflation does not result in a drop in prices, but in a smaller increase in prices over time – which ended up affecting the opinion of the North American electorate.

In Brazil, dissatisfaction is also evident. A survey published by the Genial/Quaest institute in July revealed that 63% of Brazilians feel that their purchasing power has decreased compared to last year, reflecting a scenario of economic pressure. This percentage, although lower than the 67% recorded in May, is still high and indicates persistent dissatisfaction. This factor could become decisive in the next elections, with the economy becoming a priority for voters.

For Adriano Cerqueira, professor at Ibmec in Belo Horizonte, the economic recovery faces challenges that could directly impact the 2026 elections. He explains that, although GDP has shown some growth, this has occurred “due to the expansion of public spending”, which leads to an increase in interest rates and costs for refinancing public debt. “The government is paying dearly for debt refinancing and is losing its investment capacity”, says Cerqueira, highlighting the difficulty in promoting a substantial improvement in public accounts.

In other words, the PT wing led by Gleisi insists on increasing public spending and trying to artificially raise the minimum wage, without also increasing production. Haddad’s group faces resistance from Lula to cut spending and opts to raise rates. But these factors end up, in practice, creating a scenario in which Brazilians’ salaries tend to be able to buy fewer and fewer products.

For specialist Adriano Cerqueira, economic difficulties could undermine the PT’s chances in 2026, both with Lula and with another name on the left. “The Lula government lost 2023 and 2024 to make a fiscal adjustment that would provide conditions for an improvement in public accounts”, he assesses. Without this recovery, Cerqueira believes that economic dissatisfaction is likely to remain high, hampering the party’s trajectory in the next election.

According to political scientist Elton Gomes, professor at the Federal University of Piauí (UFPI), the current Brazilian government faces a political challenge in relation to the economy comparable to the one that helped to overthrow the Democrats in the United States.

“In Brazil, the average citizen, the average voter, worries about their ability to pay their bills, buy essential items and guarantee some comfort”, says Gomes, highlighting that this perception is a strong indication of public dissatisfaction.

He also claims that current economic policy is creating a negative perception that could be exploited by future opposition candidates. “Whether it’s Bolsonaro’s successor or Bolsonaro himself, if he reverses his ineligibility, the opposition will have a favorable scenario to attack the economic situation in the next election”, says the expert.

Split in the government over the economy comes up against the country’s economic reality

The divergence between Gleisi Hoffmann and the Minister of Finance, Fernando Haddad, over the progress of the Brazilian economy ends up clashing with the country’s economic reality. The PT president is against cutting structural spending, such as health and education, unemployment insurance and benefits for public servants.

On the other hand, Haddad and his team aim to make a deep cut in the government’s social programs as a way of containing public spending, which has been causing a crisis within the government. This Thursday (7), Minister Carlos Lupi said he will leave the government if Social Security is affected by the cuts studied by Lula.

“Those who have to donate something in this process are those who have a lot, not those who have nothing. How will you get Social Security? The average salary for people is R$1,860. What am I going to do with this? Take away acquired rights? Don’t count on me. Will I lower my salary? Don’t count on me. I will no longer have any real gains [no salário mínimo]? Don’t count on me. If that happens, I can’t stay in government,” he told the newspaper. The Globe.

But what does economic theory say about Brazil’s public spending capacity? Economist Tays Marina explains that, unlike the United States, “Brazil is an emerging country, with a more vulnerable currency and high interest rates”. This scenario makes Brazilian public debt more expensive.

“This makes it difficult to attract investments and increases the risk of devaluation of the real and inflation, if the country continues to increase spending without fiscal responsibility. The uncontrolled expansion of expenses can generate economic instability, making spending control essential to maintain investor confidence in Brazil”, explains Marina.

Asked about when increasing public spending is beneficial and when it is harmful, the economist explains that this attitude is beneficial in times of crisis, such as the pandemic, to “sustain the economy, protect consumption and maintain jobs”. On the other hand, the action turns against the country when there is no balance in public accounts. Last year, public accounts closed the year with a primary deficit of R$249.124 billion, representing 2.29% of GDP.

“If the government already has a high debt, extra spending can worsen this debt, raising interest rates and hindering economic growth. Furthermore, without an increase in the production of goods and services, spending can generate inflation, reducing the population’s purchasing power. The uncontrolled increase in public spending can affect investor confidence. If economic agents realize that the government is spending more than it can sustain, this could reduce the willingness of investors to invest in the country”, points out Marina.

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