He president Javier Milei used the national network last Monday to highlight an important milestone: the third consecutive month of fiscal surplus. In his message, there were no new announcements, but rather he focused on highlighting this achievement. At the outset, it should be noted that this surplus was achieved not only by postponing the payment of debts, but also by cuts in pensions, public works and transfers to the provinces.
The Ministry of Economy publishes the fiscal performance corresponding to March 2024, thus marking the end of the first quarter of the year in budgetary terms. The positive balance achieved in the month amounted to $276,000 million, with an accumulated surplus of $1,300,000 million in constant terms for the quarter, according to the Romano Group report titled “The numbers behind the fiscal surplus.”
The document sheds light on the last quarter in terms of fiscal execution, analyzing the nature of the adjustments made and evaluating the sustainability of this surplus.
Reduction of primary spending by 35%
The report assures that primary spending experienced a decrease of 35% in real terms during the accumulated period of 2024 compared to the same period of 2023. This reduction was mainly driven by:
- A 35.7% drop in retirements, which represented 34.8% of the total adjustment.
- Other affected sectors include subsidies (-45.8%), salaries (-19.6%), transfers to provinces (-76.3%), and public works (-86.8%).
- These items together contributed 82.4% to the decrease in primary spending.
“The review of the pension adjustment formula was crucial,” says Romano Group, since the previous one left salaries lagging behind inflation, which generated a significant loss of purchasing power (“blender”). Although the new measures have allowed a slight recovery in purchasing power, “when indexed to inflation, there is a risk that pensions will be left behind in times of economic growth,” he concludes in this regard.
Regarding transfers to provinces and investment in public works, the document highlights a drastic reduction, “iindicating a more severe adjustment approach that affected several concepts“.
Decrease in income by 4.5%
Tax revenues experienced a drop in real terms, although not as pronounced as that of spending, which contributed to the positive result in the fiscal balance. “Although VAT barely increased by 0.5%, Profit income suffered a drop of 37.1% due to reforms implemented during the electoral campaign“he adds.
Despite the general reduction, tax revenues were supported by taxes linked to foreign trade, such as Export rights (71.9% increase), import duties (9.4% increase), and the large COUNTRY tax (305% increase).
This signals a worrying reliance on taxes that can be detrimental to international trade, calling into question the prompt removal of currency restrictions needed to boost economic activity and allay fears of devaluation.
The future of the surplus
For Romano, andThe commitment of the current management to the normalization of public accounts is evident and it carries out its actions accordingly.. This caused the country’s risk to plummet to levels not seen in years and also allowed inflation to decline with the strong fiscal anchor stated (previous strong impact on activity).
In the meantime, by indexing retirements in relatively low areas of purchasing power, it gives it some extra oxygen in the immediate term while it tries to close the different agreements, together with rate adjustments that will mean less transfer via subsidies.
However, he warns that although a large percentage of the adjustments are mainly due to liquefaction or non-payment (CAMMESA), “The Government aims towards a May Pact that, together with the basic law and the fiscal chapter, will allow it to have greater tools to overcome the challenges that are coming in budgetary matters.“.
These challenges are based on the sustainability of the adjustment, agreed upon. “This will not only be crucial in the future of public accounts, but of the entire economy as a whole,” he concludes.
Source: Ambito
