The fiscal “inheritance” that the Government received was worse than expected and the effect of the economic recession of 2024 will be negative on tax collection. What is thought to be gathered on one hand will be lost on the other.
The starting point of President Javier Milei’s adjustment plan will be worse than he expected to apply. It is 6% of GDP, 1 point worse than what the Minister of Economy, Luis Caputo, estimated. It is more than likely, then, that the ambitious goal of achieve 2% fiscal surplus primary promised to the International Monetary Fund (IMF) be reduced to 0.8%they propose in the market.
This is the explanation for the Government’s harshness with the governors who refuse to approve the increase in withholdings to the countrysidemore than anything, because the increase in tax pressure will have a neutral effect on income.
The withholdings themselves will generate a contribution to tax collection in 2024. According to Government estimates, this year they should report 1.2% more, of which 0.7 points come from the recovery of exportsleaving the drought behind, and 0.5 points come from the increase in rates.
The problem, as stated Martín Polo, economist at Cohen Argentinathe thing is The recession that will occur in 2024 will seriously affect tax collection in general, with a drop of 1.2% of GDP. For this reason, the Government needs the entire battery of tax increases proposed in the omnibus law package, above all, because one of the pillars of the tax system, VAT probably contributes less due to the drop in consumption and activity.
Milei’s controversial phrase and the position of the provinces
“I’m not going to leave you a single peso,” Milei said in the last cabinet meeting in the face of the governors’ firm refusal to support the increase in withholdings that would affect their producers, from which they receive nothing because that tax burden is not shared.
The axis of the conflict today with the provinces is that, If the adjustment is not approved as it is, Milei may not be able to comply even with reaching the end of the year with a zero deficit.
Polo states that “the new administration implemented a shock policy, within which there are things that can be done quickly and others have to go through Congress.”
In that sense, the market analyst considers that “There is a lot of expectation” from the Government in the package “so that the market believes that there will be no gradualism”
Polo ironically states that “The drop in the level of activity cannot be negotiated by the Government in Congress” and based on that reality it seems that the ruling party “he forgot the chainsaw since a large part of this adjustment is going to be with an increase in taxes”
“We believe that retirees will continue to be adjusted in terms of GDP. What is most worrying is the impact that the recession will have. Due to less activity, we are forecasting a drop in revenue of 1.2 points of GDP.”he said in a talk to investors.
Source: Ambito
