Summer reading: "Lula 3.0 and the Austerity Trap"
Nara Roberta Silva on approval ratings and fiscal conservativism
In Brazil this week, President Luiz Inàcio Lula da Silva enjoyed a bump in popular approval, after Donald Trump announced a 50 percent tariff on imports from the country. It’s the first time Lula has seen a rise in ratings all year.
Why is a president internationally celebrated as a leading voice against the authoritarianism doing so poorly at home? In timely new essay for Public Seminar, Nara Roberta Silva explores the incongruities of Lula’s third term.
Lula 3.0 and the Austerity Trap
Nara Roberta Silva
Campaigning for his third term as president in 2022, Lula da Silva ran on a straightforward message: making Brazil “happy again.” Now, halfway through his third term, macroeconomic indicators paint a fairly rosy picture of the country’s trajectory under his administration: GDP growth exceeded expectations, and the unemployment rate fell to historic levels. On the international stage, the president is celebrated as a leading voice against the authoritarianism and neo-imperialist aspirations of figures like Donald Trump. Yet at home, Lula’s popularity is declining.
As Lula 3.0’s second half unfolds, limitations in the Workers’ Party model persist. After recovering from a coup attempt on January 8, less than a week before the inauguration, the new government swiftly restored or enhanced some of the Workers’ Party’s flagship social programs that had been weakened under Jair Bolsonaro, such as Bolsa Família (cash transfers to poor families), Minha Casa Minha Vida (construction and financing of affordable housing units), and Mais Médicos (provision of physicians in vulnerable areas). However, the first months of the administration, back in 2023, showed that the various programs’ longevity would be contingent on expanding their funding source: state revenue.
Lula bet on a Keynesian formula that sought to boost demand through increased state intervention and investment—a key feature of his previous administrations. In August 2023, the government set in motion a new iteration of the Programa de Aceleração do Crescimento (Growth Acceleration Program), aimed at large infrastructure projects in several areas, including transportation, green energy, and digital transition. In January 2024, a new industrial policy was launched to foster technological innovation and strengthen domestic industries. However, while investment rates grew a great deal from 2023 to 2024, at the current 17.6 percent, they are still considerably down from the average 20 percent achieved from 2008 to 2013, during Lula’s second presidency and the first Rousseff years. Without the expansion of such rates and, hence, without the guarantee of long-term growth and higher revenue, Lula and the broader Workers’ Party project is compromised.
One can argue that changes in the international scenario, particularly post-pandemic mixed trends in commodity prices, constrain what Lula 3.0 can deliver. However, the government’s own fiscal approach should be considered the main hindrance. The Novo Arcabouço Fiscal (New Fiscal Framework), championed by Minister of Finance Fernando Haddad, presents itself as a more flexible alternative to rigid fiscal targets but ultimately reinforces a restrictive logic that prioritizes debt control over social investment. By tying spending to economic performance and capping expenditures even in periods of prosperity, the framework limits the government’s ability to respond to pressing social needs, invest in long-term transformations, and address structural issues that perpetuate inequality. The government, and the minister in particular, justifies these choices as pragmatism, disguising an austerity rationale as fiscal responsibility.
The Workers’ Party never sidelined concerns with balanced budgets in previous administrations, but Lula 3.0 has escalated this priority, as attested by the set of measures to “enhance fiscal responsibility” approved at the end of 2024. Key components include cuts to education funds and a cap on above-inflation raises to the minimum wage. The latter influences other expenditures, including unemployment and social security benefits, along with stricter eligibility criteria for social programs, such as disability benefits and Bolsa Família. The progressive social investment measures the government has announced—such as tax exemptions for individuals earning up to 5,000 reais per month and a super-rich tax, aimed at exclusive and off-shore investment funds—pale when compared with the government’s defense of fiscal conservatism.
The conflict between targeting inequality through public spending and following the dictates of the market leaves Lula 3.0 with no option but to further bet on agribusiness and mining in order to generate much-needed revenues and prevent serious economic destabilization in the near future: Take, for instance, the recent proposal to explore oil and gas deposits near the mouth of the Amazon River by Petrobras, the national petroleum company, a prospect criticized by the government’s own federal environmental agency.
Without progressive structural transformation, Lula 3.0 will not be able to move the Brazilian economy away from neo-extractivism, as left-wing critics of previous Workers’ Party administrations have pointed out. And besides generating contradictions from an environmental perspective, a point strongly highlighted by Indigenous activists in Brazil, the neo-extractive trap reinforces the dependent nature of the Brazilian economy—its continued reliance on exporting raw materials and low-value goods to wealthier countries, rather than developing a diversified industrial base—and leaves little leverage to push back against the new Trump administration.
Lula’s third presidency should also be assessed in terms of the institutional leverage the right wing currently holds. Brazil’s multiparty political system has always required the making of alliances to build majorities in both the House and the Senate, pushing the coalition in power into negotiations across the political spectrum. Those who sided with Lula in the latest run knew his new presidency would face challenges in the parliament thanks to the election of a more sizable far right-wing cohort to Congress, which would compel the president to reach out beyond the coalition that led to his victory, toward center-to-right and traditionally right-wing forces that had merged with bolsonarismo. At the beginning of his third term, Lula granted some of Bolsonaro’s old allies cabinet seats in exchange for support for the government’s proposals and conceded to right-wing forces in public safety and the military. For example, Lula assigned José Múcio, a favorite among the armed forces, the position of Minister of Defense.
However, Bolsonaro-era changes to the management of the federal budget, which allowed lawmakers to allocate portions of government funds at their discretion, have disrupted the balance between executive and legislative power. Despite Brazil’s supreme court having ruled Bolsonaro’s slush fund illegal, lawmakers are no longer dependent on the administration for access to government spoils and have little incentive to cooperate with it. The broad right-wing bloc has exploited this dynamic to exert pressure from both directions—demanding deeper austerity measures while simultaneously blaming the administration for the harm those very policies may inflict on the country.
The reason the damage isn’t greater for Lula 3.0 is because the right wing is currently in disorder. Bolsonaro remains the central reference for the conservative mass movement consolidated with his election in 2018, but the demonstrations in his support are shrinking and his legal troubles have considerably worsened, since he is now indicted on the January 8 charges by the Supreme Court; the possibility of arrest following a trial in the fall is real. At the same time, no other right-wing personality has been able to claim themselves as the heir of bolsonarismo yet. Multiple names, such as Bolsonaro’s wife Michelle, São Paulo governor Tarcísio de Freitas, and Minas Gerais governor Romeu Zema have been floated as alternatives. The future is unclear.
Such dynamics marked the nationwide municipal elections that unfolded in October and November last year. The Right won 78 percent of the disputed seats (or roughly 4,300 municipalities) in a single round; the Left was beaten in most of the 52 major cities where its candidates competed in the second round, under the runoff format, and its mayoralties fell from 863 to 752 since the previous elections, in 2020. Indeed, most second-round runoffs pitted center-right to far-right perspectives against one another, effectively excluding a progressive conversation altogether.
The case of São Paulo—the country’s largest city—is particularly noteworthy. After a strong showing in 2020, housing movement leader and Lula-endorsed candidate Guilherme Boulos was well-positioned to challenge conservative incumbent mayor Ricardo Nunes. However, an unexpected third contender, internet celebrity coach Pablo Marçal, came just a few thousand votes close to advancing to the second round. Running an aggressive campaign against the “establishment,” Marçal was able to (re)energize a broad working-class and middle-class base against “wokeness” and for a pro-market agenda. His performance is a testament to the energy of the far right and its current capacity to galvanize people and shape the debate in the country. Boulos could not match the combative approach Marçal brought to the dispute and could gain no further ground for the Left. Meanwhile, Marçal’s failure to advance to the second round and Nunes’s struggle to unify the right from the onset reflect divisions still to be bridged by conservatives in the months to come.
Despite these fractures, the Right’s narrative capacity remains strong, thanks to the online militia consolidated in the years of Bolsonaro’s administration. Lula 3.0 has faced a decentralized yet highly coordinated effort to spread misinformation and foster conservative and market-friendly values in the country. When the state of Rio Grande do Sul was destroyed through record rainfall and flooding in 2024, rumors that the government was unable to respond to the disaster and had even abandoned the population flooded social media and WhatsApp and Telegram channels, swaying anxieties about the tragedy toward anti-state sentiment. In early 2025, the government revoked a decision to monitor a real-time payment system that allows instant transfers between bank accounts, following right-wing online allegations that the decision was intended to further tax working people, particularly those in the gig and service industries.
This online militia not only spreads misinformation but also serves as an ideological incubator, systematically nurturing radicalization through a constant stream of memes, edited videos, and broadcasts framing authoritarian actions as righteous resistance. When Brazilian authorities arrested several members of an elite army unit in November 2024 for 2022 plot to assassinate then-president-elect Lula, his pick for vice president, Geraldo Alckmin, and Justice Alexandre de Moraes, whose decisions have hindered the bolsonarista movement, an online echo chamber amplified conspiratorial narratives, justified political violence, and cast the perpetrators as patriots resisting a corrupt and illegitimate regime. Following the January 8 insurrection, these same digital platforms quickly shifted gears to draw decontextualized comparisons with left-wing demonstrations, downplaying the gravity of the attack on democracy.
In this context, Lula’s declining popularity should come as no surprise. Approval ratings have dropped across all regions, and while Lula 3.0 has managed to stabilize the economy and restore some key social programs, these gains remain fragile under the weight of fiscal conservatism, an uncooperative legislature, and a political environment saturated by disinformation. The right-wing opposition has maintained its grip on the public imagination through a potent mix of narrative warfare and institutional leverage. Meanwhile, Eduardo Bolsonaro, now residing in the US, works to expand transnational alliances capable of applying external pressure on Brazil’s political field, outsourcing the harassment of political opponents to international partners.
Lula’s third term is shaped by a profound incongruity: While the Left holds the executive, it governs from a defensive position, making repeated concessions to market and conservative forces in hopes of maintaining governance. The cost of this strategy is high: It demobilizes the popular front-style alliance that brought Lula to the presidency for the third time, erodes the administration’s transformative capacity, and leaves the broader Left vulnerable to the Right’s relentless ideological advance. For liberals and progressives in the US and worldwide, Lula’s predicament offers a lesson. Ceding ground to the right wing does not ensure stability and may accelerate backsliding. The challenge is to resist the false security of moderation.
If Lula 3.0 is to leave a legacy beyond mere damage control, it will require a political recalibration—one that reclaims the initiative, reinvests in popular organization, and confronts head-on the structural constraints that currently dictate the terms of progressive governance in Brazil. Without such a shift, the administration risks becoming a tragic case study in the limits of left-wing power under right-wing hegemony.