Lula's R$215 billion election spending collides with surging inflation and fiscal crisis.

President Luiz Inácio Lula da Silva's electoral package has reached a scale that can no longer be disguised as ordinary public policy: according to a Folha de S.Paulo survey, the bundle of measures announced in the election year — including the ban on online betting and the third edition of Desenrola Brasil — brings the total cost of the initiatives to as much as R$215.6 billion, a figure that eclipses any pretense of fiscal neutrality and reaches the market at a moment when September's IPCA-15 surprised to the upside, rising 0.7%, well above the median estimate of 0.53%.

The combination is explosive. The inflation index, which had posted deflation of 0.4% in August — boosted by the extraordinary Itaipu bonus on electricity bills — resumed its upward trajectory with force, driven by housing costs, which climbed 2.07%, and by the reversal of food deflation. Santander economists project that IPCA will close 2026 at around 5%, above the 4.5% ceiling of the target, with André Braz of FGV-IBRE flagging El Niño as an additional risk factor for agricultural prices. The central bank had already signaled in its latest monetary policy report that the inflation horizon for 2027 and 2028 continued to deteriorate, and the IPCA-15 reading confirmed the diagnosis. The Focus survey median for the Selic rate at the end of the cycle fell slightly, from 13.75% to 13.50%, but the room for more meaningful cuts remains narrow — and any additional fiscal expansion compresses it further.

It is in this environment that the government opted for its most controversial move of recent months: the provisional measure banning online betting houses, signed nine days before the presidential election, openly contradicting the regulatory policy the Executive itself had built over the past two years. The government had sold 85 licenses at R$30 million each, and Finance Minister Dario Durigan confirmed that these amounts will not be refunded. The task force from the Ministries of Justice and Finance has already taken down 506 sites offering irregular betting, and the package includes prison sentences for anyone operating in the sector. The industry's reaction was immediate: operator associations are announcing legal action, with studies underway for a Direct Action of Unconstitutionality at the STF or a collective writ of mandamus. Legal experts consulted by Folha acknowledge the legitimacy of the measure from a public health standpoint but warn that the abrupt reversal of a regulatory framework established by the State itself deepens the country's already chronic legal uncertainty. The fiscal cost of the decision is concrete and immediate: Planning and Budget Minister Bruno Moretti admitted that the government will need to offset a loss of R$6.8 billion in betting revenues through 2027.

At the same time, Desenrola 3.0 — with an allocation of up to R$15 billion for the acquisition of delinquent credit portfolios aged between two and four and a half years, with discounts of up to 90% — has an ambitious schedule, with the first auction slated for November. Febraban reacted positively, and banking sector sources downplay the moral hazard of the operation but warn that the main concern is the fiscal impact on the government. The eligible portfolio totals between R$125 billion and R$150 billion, according to industry estimates, and includes credit card debt and non-payroll-deducted personal credit, in addition to debts owed to utility providers and retailers.

The broader fiscal picture remains the backdrop that no presidential candidate — in an election set for the coming days — can fully ignore. Gross public sector debt has already reached 80% of GDP, and Valor Econômico reports that the nominal deficit, including interest expenses, stands at around 9% of GDP. Economist Samuel Pessoa, in a Folha column, warns that without additional fiscal effort beyond the simple execution of the current framework, the pace of debt growth could exceed 4% of GDP per year in the next four-year term — up from 2.8% in the current mandate. Lula himself, in an interview with BandNews, stated that the rise in public debt "does not cause panic" given the country's dollar reserves, an argument that found no echo among analysts. Itaú Unibanco and Bradesco have already revised down their growth projections for 2026, from 1.9% to 1.7%, and consensus points to expansion of just 1% in 2027, the year the new president takes office.

On the external front, oil at US$104 per barrel — down 1.9% on Friday but with substantial gains over recent sessions in the wake of the war in Iran — maintains pressure on energy and transport costs in Brazil. The ANP levied R$700 million in fines on distributors, including Vibra Energia and Raízen, for abusive fuel prices following the outbreak of the conflict. The Finance Ministry kept the diesel subsidy at R$2.12 per liter in October, signaling that the government will not abandon the price-control instrument even under fiscal pressure. In the opposite direction, Aneel triggered the green tariff flag for October, meaning consumers will not pay an additional charge on their electricity bills for the first time since May — a modest relief, but a welcome one on the eve of the vote.

On the corporate and markets front, the Ibovespa closed Friday down 0.26% at 183,476 points, with the dollar quoted at R$5.184 after a 0.17% decline. The eve of the election, however, is already generating euphoria in EWZ, the ETF of Brazilian equities traded in New York, with asset managers increasing long positions in index call options. Nubank, whose shares are traded on the NYSE, is advancing in negotiations to acquire Monzo, the British digital bank with 16 million clients, in a transaction that could value the fintech at up to £10 billion — a move that, if completed, would transform David Vélez's company into the first genuinely transatlantic neobank, with meaningful operations in Latin America, the United Kingdom, and the United States. WEG expanded the projected capacity of its new battery energy storage systems plant in Itajaí, and Axia Energia — the former Eletrobras — approved an additional allocation of up to R$4 billion for the redemption of Class C preferred shares.

In the coming sessions, the market will watch for the release of the Federal Public Debt Report for August, the Focus bulletin with expectations collected after the IPCA-15, and speeches from Federal Reserve officials, which remain relevant for the interest rate differential and the exchange rate level. The election result, whatever it may be, will determine not only the next steward of the public accounts but also the composition of the central bank: the new president will be able to appoint six of the nine board members by January 2028, making October's election an event with monetary consequences that will extend for years.