Lula Was Elected President
Here is what I believe international lawyers should expect from his administration.
Premises
Lula’s campaign did not release a detailed government plan, nor a list of potential ministers. This analysis was based on the political commitments of the Workers’ Party (PT), especially those disclosed in documents from the Puebla Group, the São Paulo Forum, and in the party’s own resolutions, such as those from its 6th National Congress.
1) Main impacts: taxation of inheritances and offshore companies
Reducing the use of companies in tax havens is a clear item on the Puebla Group’s agenda.
For years, the PT has attempted to introduce the so-called wealth tax. Likewise, the party supports progressive income taxation and an increase in inheritance taxation.
These issues are interconnected, since the most effective planning against wealth and inheritance taxation is the creation of foreign structures, such as offshore companies or trusts.
Legislative changes on this matter are of immediate interest to international tax professionals.
Dividend taxation will likely be part of the same tax reform that addresses the issues above.
2) OCDE
The Puebla Group supports the regulation of capital flows, including foreign investment.
The OECD, on the other hand, has the deregulation of international capital flows as one of its main objectives.
Brazil’s accession process to the OECD will likely become slower and more difficult due to these and other programmatic incompatibilities.
The impact is mainly regulatory: Brazil had been preparing for more than one hundred legislative and sub-legislative changes in order to “fit” into the OECD. It will be necessary to observe whether these changes will continue or be suspended.
3) ESG and the environmental agenda
The Lula administration will likely prioritize the political aspects of ESG, such as female and racial inclusion. These issues were not a priority for the current administration.
The PT also has an affinity with the environmental ideals of the UN’s 2030 Agenda.
Especially on environmental matters, it is clear that there is a certain antagonism between agribusiness and the PT.
International relations: The PT maintains good relations with left-wing parties in Europe and the United States, which may reduce international pressure on Brazilian agribusiness and facilitate exports.
Internal controls: The new administration should impose stricter controls on production, including environmental fines, restrictions on pesticides, and possible land reform initiatives.
The outcome of this interaction is unpredictable and may range from a net increase in exports to a reduction in total agricultural production.
4) Relations with Latin America and the BRICS
The Bolsonaro administration’s relations with the BRICS were not poor, but a strengthening of Brazil-China and Brazil-Russia relations is expected due to the ideological alignment of the ruling parties.
Brazil-China: This may create business opportunities in food exports, with the easing of phytosanitary restrictions.
Brazil-Russia: Relations should remain in good standing and may even improve.
Latin America: Political relations are expected to be harmonious, with financial support for countries in the region.
The resolutions refer to “a network of regional banks that would serve sectoral financing needs and the revival of the idea of the Bank of the South. An expansion of the current Latin American Reserve Fund (FLAR).”
In practice, for lawyers, this may generate agreements related to visas, worker migration, recognition of academic degrees, and other cooperation mechanisms.
5) Drugs and the narco-economy
If the administration has enough political strength, it is expected to liberalize certain narcotics, whether for medical or recreational use.
This would insert Brazil into the narco-economy, similarly to Uruguay and some U.S. states.
6) Social media
The new administration should attempt to regulate social media.
This will have a direct impact on the creative economy and the online advertising sector.
7) State intervention in the economy and its effects on foreign investment
A slowdown in denationalization and privatization processes is expected. Private investment in rail transport, cabotage, and the road network should decrease, potentially being resumed through state-led projects similar to the former “PAC.”
At the same time, an increase in social spending is likely, which may raise inflation and interest rates.
This scenario tends to concentrate economic activity among a smaller number of companies.
7.1) Banking market
The process of banking deconcentration initiated by the Central Bank may lose priority. On the contrary, an expansion of credit through public banks is expected.
This favors the maintenance of the banking oligopoly, combined with rising interest rates.
7.2) Foreign investment
Brazil should attract speculative capital through the stock market, betting on interest rates.
Foreign direct investment in productive activities does not show a clear trend, but it may come from large players willing to participate in government-coordinated projects, such as power plants and roads.
The scenario may resemble the wave of Chinese investments seen during previous PT administrations.