Brazil: Lula remains favorite to win Sun. runoff, though race to be tight

• Lula enjoys average support of 49% of votes, which is safely above Bolsonaro's 44%
• But Bolsonaro's support was underestimated for first round on Oct 2 and it's not clear if that's happening again
• Lula plans big changes for Brazil, but probably won't have the support in Congress and so more moderate changes likelier
• Bolsonaro has promised to keep free-market-style reforms

Ex-President Luiz Inácio Lula da Silva from the leftist Workers' Party (PT) is the favorite to win the presidential election runoff on Oct 30 as all opinion polls show him in front of his rival, President Jair Bolsonaro, running for the far-right Liberal Party (PL). Lula has average support of 49% in the most recent opinion polls, putting him in front of Bolsonaro and his 44%. There is added uncertainty, though, since Bolsonaro's support was underestimated by as much as 8pps ahead of the first election round on Oct 2 while Lula's was too low by some 3pps. If Bolsonaro gained by a net 5pps, the runoff would be a dead heat, but it is possible the pollsters have also reduced error by altering their sampling, meaning there is some uncertainty. If the polls are accurate, it will be hard for Bolsonaro to make up the ground, especially as there are no more debates and considering Bolsonaro's high rejection rate. Attention is turning to who will be in Lula's government and whether he can implement the type of fiscal and other reforms he has promised and/or that are required by Brazil, particularly considering Congress took a right-wing term on Oct 2.

Since the first round, Lula has received the endorsement of Simone Tebet, who placed third with 4.2% of the vote in the first round. Still, her party, the Brazilian Democratic Movement (MDB) will allow its members to vote their conscience in the election. The Democratic Labor Party (PDT), whose candidate, Ciro Gomes, placed fourth with 3.1% of the vote in round one, also endorsed Lula. The pollsters PoderData said recently that Lula would get 92% of Tebet's valid votes. In the case of the fourth-placed candidate Gomes's valid votes, some 54% are to go to Bolsonaro and 46% to Lula. In terms of endorsements, Lula remains the favorite to prevail on Sun.

Bolsonaro's victory in the elections in 2018 came on the general backdrop of a desire for change and a desire to fight corruption, making him the first non-PT or non-Brazilian Social Democracy Party (PSDB) president. The PT's previous reign ended with a deep recession and a massive corruption scandal, including one that found Lula unable to run in 2018 as he was behind bars, though the Supreme Court later reversed those charges. Bolsonaro's radicalism was thus looked beyond. Bolsonaro did not moderate once at the president's palace and he continued his controversial ways, including unproven comments about the coronavirus and related to women, minorities, and democracy. He has been trying to be somewhat less controversial and highlighting the threat to the economy from the left, though his ability to do so has not been good, especially in related to inflammatory comments made about Venezuelans.

Lula eyes moderate reforms

Lula's support is to some degree based on nostalgia. Most Brazilians remember when he was president during the good years of 2003-10, when income was high, unemployment was lower, and fuel was cheaper, even if that economic success largely depended on a commodity boom. Now, the economy is still recovering from the coronavirus pandemic, the negative effects of Russia's invasion of Ukraine, inflation pressure, and faces the threat of a potential global recession.

Lula has run a lot of his campaign highlighting Bolsonaro's foibles and has not be overly specific about his economic agenda. He does not have an official spokesperson for economic proposals. There is a group of economists around him and his party giving some signals about his potential proposals, though Lula himself has said his plans will be announced after he wins. Still, the consensus among his advisors is that he will loosen fiscal rules to boost public investment, social programs, and green initiatives. Lula has also been cautious about announcing any potential policies since he wants to keep the peace with centrists. During Lula's first term, despite launching big spending programs, he did also keep agreements with the IMF and did calm investors down. Still, he did not solve fiscal problems related to the pension system and, in the end, the economy crashed under the administration of his anointed successor, President Dilma Rousseff, who was eventually impeached for breaking fiscal rules, leading the way to election loss.

Lula does, however, oppose the spending cap ceiling rule implemented by President Michel Temer in 2016. The rule only allows spending by the federal government to grow as much as the previous year. His economic advisors have said there are options on the table. The first is to create a target range for primary surplus. The government could thus spend more during an economic recession. Another option is to limit spending growth to inflation plus some other undetermined indicator, allowing a real increase in spending.

One problem for Lula and the PT is the continuing whiff of corruption. Several senior politicians, other legislators, and governors participated in the illegal billing of contracts for oil projects, including several members of the PT and the Brazilian Democratic Movement (MDB). Lula has never apologized for the corruption scandals that occurred during his administration. The scandals have hurt the PT's ability to form strong alliances with leftist parties. The PDT did endorse Lula, but its fourth-placed candidate Gomes did not make an open and active call to support Lula.

Another consideration is that Bolsonaro's PL saw a surge of support in the congressional election held on Oct 2 to give it the biggest single caucus in the new Chamber of Deputies with 99 of the 513 seats. The PL's result marks a stunning success as it won only 33 seats in the 2018 congressional elections and now has 76 seats in the lower house. The PL won 8 of the 27 senators elected. The Workers' Party will have the second biggest caucus with 68 deputies, increasing its total from the 38 won in 2018. In the Senate, the PT won 4 seats, which is actually down from 6 before. This means that Lula could have tricky talks to implement policy in the next Congress, and some sort of moderation would appear likely. In fact, both Lula's PT and Bolsonaro's PL will have to negotiate a majority to legislate no matter who wins on Oct 30. But Lula will have more work to do. To be able to secure an absolute majority, 257 votes are needed in the lower house and 41 in the Senate.

Bolsonaro gains momentum

Much of the current focus is on the underestimation of Bolsonaro's support ahead of the first round of voting on Oct 2. That gave him some momentum in the immediate days after the election. Also boosting him is the fact that inflation is easing and economic activity is recovering from the negative effects of the coronavirus pandemic. Bolsonaro likewise decided to replace Lula's Bolsa Familia program with the new Auxilio Brazil cash aid program. He not only increased the average monthly amount to BRL 400 from BRL 193, but he also decided to give additional support in 2022, raising the total to BRL 600 per month for the most vulnerable people in order to provide compensation for the negative effects of Russia's attack on Ukraine. Bolsonaro has promised to keep the elevated total in 2023, and that won't help his re-election bid.

Bolsonaro has said he intends to keep Economy Minister Paulo Guedes in place as the super minister de facto in charge of the Economy, Finance, Planning. and Development Ministries. He has driven a pro-market economic agenda during Bolsonaro's first term, for the most part. Guedes finally privatized the state-owned power utility firm Eletrobras and was able to secure a solid enough pension reform. Still, the coronavirus pandemic delayed the privatization process of the state-owned oil firm Petrobras and the Post Office and the approval of the administrative and tax reforms. The government also raised spending sharply, and the government launched expanded cash programs in a way that would make the PT proud.

Bolsonaro also wants to make the spending ceiling rule more flexible. The Economy Ministry has proposed to target public debt over GDP as a mid-term fiscal anchor to allow more fiscal flexibility in the short term. Another proposal is that spending could grow a specific amount above inflation as long as gross public debt remains below a certain share of GDP. Guedes noted recently that there are cases in which the rule does not work, even though he acknowledged it as a symbol of austerity. Guedes added that the rule does not allow for the distribution of resources obtained from the privatization of state-owned oil firms to the poor.

One major worry related to Bolsonaro is that some say a second term could be dangerous for Brazil due to his political views. He undermines institutions, including the Federal Supreme Court (STF) and the National Congress. He has also made divisive comments regarding minorities and vulnerable groups, insulted the LGBT community, women, and black people. He opposes same-sex marriage, abortion, immigration, and what he calls gender policies. Although the rating agency Moody's does not expect major post-election turmoil, Bolsonaro has said the only way he can lose the re-election is if it is manipulated, noting he will not accept the result. That raises fears of post-election trouble should Lula win. It is probable that the closer the result, the more opportunity for post-election tension.

Opinion polls

As noted, there are some questions over polling as Bolsonaro's support was sharply underestimated ahead of the first round. One problem is that voters are "embarrassed" to say they back Bolsonaro. According to the pollster PoderData, this problem is biggest during face-to-face polling, but is alleviated when telephone polls are done. The polling averages reflects a mix of face-to-face and telephone polls, meaning there probably is some error there, though pollsters should have also compensated for the problems.

Last-minute undecideds could also be a factor. The political class and local media have tended to underestimate the strength of Bolsonaro and his social media campaigns and presence.

As noted, the average of the most recent polls gave Lula 49% of valid votes, putting him 5pps of Bolsonaro and his 44%.

Election Framework

Brazil's elections are based on a compulsory voting system in which voters between 18 and 70 are obligated to vote. The 1988 constitution lowered the voting age, permitting 16- and 17-year-olds to vote voluntarily. Those eligible to vote are automatically registered in the electoral system and decide to vote with screen fingerprint recognition. The new president is elected for a 4-year term with the possibility of being re-elected once for another term. He will take the post on Jan 1, 2023.

As in the first round, Brazilians can vote between 8:00 am and 5:00 pm local time. Pollsters can release exit polls as soon as the election across the entire territory ends. Official results are expected at 11:00 pm local time.