What is the magnitude of the cut suffered by the provinces?

What is the magnitude of the cut suffered by the provinces?

An analysis on the amount of money that the federal State sends to the provinces per year per inhabitant, you can anticipate the effect that spending and tax cuts will have on each district and daily life in 2024. In turn, there can be found the reasons why some governors may feel compelled to issue quasi-currencies.

Until now La Rioja is the first of the provinces that approved a bond for a total of $15,000 million. He Governor Quintela He explained that he was forced by the harshness of the adjustment proposed by President Javier Milei.

It must be taken into account that in 2023 The group of provinces and the City of Buenos Aires received $14.35 billion in concept of co-participation, compensation and complementary laws. Thereto $1.88 billion are added for non-automatic transfers, or also known as discretionary funds. The data is from Argentine Institute of Fiscal Analysis (IARAF).

In terms of money per inhabitant, at the national level each Argentine received on average from the national State a total of $552,758 for co-participation and laws, while discretionary funds obtained another $40,728. In total they were $593,486.

Because it is an average, there are some districts that receive more and others less. The inhabitants who receive the most co-participation by law are those of Catamarca $1.5 billion; La Rioja, $1.28 billion; La Pampa, $1.25 billion; Santa Cruz, $1.15 billion and Chaco, $1 billion.

By discretionary transfers, on the other hand, the ranking is headed by La Rioja, with $178,000; followed by Santa Cruz, with $82,000; La Pampa, $73,500; Catamarca, $73,173 and Formosa, $70,700.

In case of The Riojaif a law is not approved to restore the funds that were lost due to the elimination of the fourth category of the Income Tax, and it is taken into account that in 2024 there will be less activity, the loss could be 20% of the automatic transfer funds. In December, for example, the loss was 21%.

Thus, the co-participation cut would add about $105,000 per inhabitant, to which we would have to add the $178,000 of discretionary funds (if 100% cut)With which The adjustment would be about $283,000 per person per year. Is almost half of the money it receives from the Nation. Unlike other provinces, the proportion of state participation in economic life is much higher.

Quasi-currencies and the problem for companies

According to a report from the Fundación Mediterránea, “La Rioja seems to respond to a pattern of province extremely dependent on co-participation and discretionary transferswithout fiscal slack (compared to the rest), with a productive profile with a very limited export bias, strong dynamism in the creation of public employment and a decline (in per-capita terms) in private employment.”

The report details the consequences of quasi-currencies:

  • Firstly, as economic agents They will seek to get rid of those papers sooner than other currencies, The speed of circulation will increase, enhancing the discount imposed by the market on the value of those bonds.
  • As a consequence of the two factors described, the local population will suffer a additional inflationary blow to the tax due to the devaluation dynamics of the peso itself.
  • But, in addition, the Companies installed in the province will see national taxes become more expensive in terms of the quasi-currency (which will be the predominant currency in which they will charge for the sale of their goods and services), because to pay (national taxes) they will have to exchange local bonds below par.
  • It may be that these companies incur late payment of these national taxes but, given the weight of La Rioja in the total GDP, this effect will be marginal on the national treasury.
  • The greatest impact in this regard will be on the profitability of the installed companies, further weakening incentives for the creation of private jobs in the province.

Source: Ambito

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