Brazil's government unleashes R$356 billion fiscal blitz one week before tightest election.

One week ahead of the tightest runoff in Brazil's recent history, the Lula administration chose the eve of the ballot-box decision to unleash its most intense fiscal artillery — and the market responded with calculated skepticism, not panic. The dollar closed Wednesday slightly higher by 0.17%, quoted at R$5.026, while the Ibovespa retreated under the weight of a Quaest poll showing Flávio Bolsonaro (PL) with 45% of voting intentions against 44% for Lula (PT) — a technical tie that keeps investors in wait-and-see mode. What makes this moment different is not the volatility itself, but the scale of fiscal concessions announced just days before the vote and the unanimity with which analysts and rating agencies warn that the next president, whoever that may be, will inherit a bill that leaves no room for generosity.

Consulting firm Pinotti & Schwartsman estimated that the package of measures announced by the government in recent months already adds up to R$356.3 billion in fiscal impact — of which R$88.5 billion were added since September alone. The latest took effect Wednesday: President Lula signed the forgiveness of R$15 billion in tax debts owed by roughly 4 million individual microentrepreneurs, a measure that only kicks in in January 2027 but whose budgetary cost is already on the books. On the same day, the government formally proposed free public transit on weekends, to be funded with 25% of mandatory parliamentary earmarks — a constitutional amendment whose cost remains imprecise but whose political signal is unmistakable. Desenrola 3.0, in turn, may reach R$90 billion in debts acquired by the government from individuals and MEIs, exceeding the combined total of the two prior programs. Minister Dario Durigan confirmed to the market that the operation begins in November and that good-faith taxpayers will not be penalized in the transition to tax reform — a necessary message given uncertainty over the new system's rollout.

Fitch Ratings was blunt: regardless of Sunday's outcome, Brazil will see tighter fiscal policy in 2027. The squeeze will come not by ideological choice, but out of arithmetic necessity. The budget sent to Congress itself was crafted with overestimated revenues and underestimated expenditures, according to Valor Econômico, and the campaign promises of both candidates — including the R$200 billion in cuts pledged by Bolsonaro, deemed unfeasible by specialists — offer no clear way out. Fitch stressed that high interest rates and fiscal tightening will weigh on economic activity next year, a scenario markets have partly priced in but which still holds surprises.

Amid the pre-election fog, the corporate agenda produced heavyweight moves. Braskem saw creditors in the United States — the FFI Fund, FYI Ltd. and Olifant Fund, linked to Bracebridge Capital — file an involuntary Chapter 11 petition against Braskem America Finance Company, the subsidiary responsible for roughly US$589 million in international debt securities, of which the petitioners hold approximately US$272 million. The petrochemical company, whose shares trade on B3 under ticker BRKM5 and on the NYSE as BAK, stated that the parent and other subsidiaries are not named as debtors in the proceeding, but the episode adds a layer of legal tension to a company already in out-of-court restructuring in Brazil. Raízen, in turn, proposed a minimum capital increase of R$3.5 billion — with share issuance at R$0.25 per paper — as part of its own restructuring plan, with a shareholder meeting scheduled for October 30 and ratification expected in December. Grupo Casas Bahia secured judicial approval for its judicial reorganization in São Paulo, while GPA saw its out-of-court plan take effect, with the deadlines for issuing debentures now formally running.

The animal protein sector suffered an unexpected blow with the detection of Newcastle disease at a farm in Nova Itaberaba, Santa Catarina. China, Mexico, Chile and Saudi Arabia — the latter the third-largest destination for Brazilian chicken exports — suspended or restricted imports from the state. The news is particularly sensitive for JBS, the global leader in the segment, and arrives as the Batista family, the company's controlling shareholders, find themselves at the center of another controversy: a Folha report revealed the clan kept billions of reais for nearly a decade in Reag funds, an institution liquidated by the Central Bank this year after fraud investigations tied to the Banco Master case. JBS trades its shares on B3 and the NYSE. The adverse Newcastle news was, however, partly offset by a positive signal from Brussels: the European Commission signaled it will propose reinstating Brazil on the list of countries authorized to export chicken and honey to the European Union, a decision pending a vote by member states.

In agribusiness, two opposing vectors stand out. A lot of coffee produced in Minas Gerais fetched R$2,200 per kilo at an Alliance for Coffee Excellence auction — a Brazilian price record at auction and a sign of the strength of specialty coffee in the international market. In the opposite direction, imports of agricultural machinery grew 144%, driven by China and India, squeezing margins at domestic manufacturers already cutting shifts and closing production lines. Brazil-China trade hit an all-time high, propelled by oil, but the relationship is beginning to show structural frictions: the same partner buying commodities in growing volumes exports equipment that destroys domestic industrial jobs.

The STF ruled that municipal ISS is not part of the PIS and Cofins calculation base — a defeat for the government which, according to Folha, may escape the obligation to refund. The decision will have repercussions for service companies across the country and arrives at a moment when tax reform itself is still not fully calibrated: the so-called Selective Tax, the "sin tax," will have its collection postponed to 2028 in several cases, regardless of who governs.

Next week, attention will be split between Sunday's runoff result and its immediate effects on FX, interest rate futures and the Ibovespa — markets which, according to BTG Pactual, could receive up to R$225 billion in foreign flows if a rate-cut scenario consolidates. Petrobras, Vale and Prio sit at the center of foreign capital's bets. The unprecedented federal natural gas auction, with 36 qualified companies, takes place Thursday and may signal real private-sector appetite for energy assets in the current risk environment. And September federal tax collection figures, to be released by Receita Federal, will offer the most precise thermometer of how much room the fiscal expansion of recent weeks still has — or whether it has already exhausted its margin.