Battle over pension reform: Without a presidential veto, will the fiscal surplus be at risk?

Finally, the Government of Javier Milei vetoed the entire pension reform approved by Congress, under the central argument that the measure “does not contemplate the “fiscal impact” that would have “nor either” determines the source of its financing“, because the change is not planned in the budget. Although, it should be clarified, there is currently no such budget, since work is being done on an extension of the one corresponding to the year 2023. In addition, dissenting voices are beginning to emerge regarding the fact that The veto confirms that “retirees are the ones who sustain the fiscal surplus”.

According to official calculations, the law sanctioned by the Chambers of Deputies and Senators This would entail additional expenditure of more than $6 billion for the State this year and almost $15.5 billion by 2025, which would be equivalent to 1.02% of GDP for the current year and 1.64% of GDP for the next year. This would make it “impossible to comply with the fiscal goals set by the National Government“, the official argument states. After the presidential veto of the law, Congress now has the opportunity to insist on its proposal, with special majorities.

Retirement mobility: differences between the vetoed formula and the current one

The law sanctioned by Congress It made up for the loss that pensions suffered in the transition to the mobility formula through a Decree of Necessity and Urgency. It contemplated an increase of 8.1 percentage points (7.2% effective)anticipated that No retiree would earn less than 1.09 of the basic basketat the same time as demanded payment of pension debts from the provinces and preserved the Sustainability Guarantee Fund from the National Social Security Administration (ANSES) of its liquidation, following the proposals that the Executive had raised within the first draft of the Bases Law.

At the same time, there was a general consensus among pension specialists, including the former head of ANSES Osvaldo Giordanothat this new formula could be an opportunity for the Government, because would avoid future lawsuits against the State and would give ANSES greater tools to defend itself in the event of lawsuits against it.

The mobility formula current legislation was modified by the Government in March through a DNU –one of the central points that could generate demands from retirees to the State in the future – provides that the updates will be made monthly for inflation based on the latest available inflation data. However, the previous to this measure involved an adverse first quarter, due to the strong inflationary inertia, as well as the rise of the COUNTRY TAX and the deregulation from various sectors of the economy.

Recovery, but from the bottom of the well

The delayed change in the mobility formula implied, according to calculations, Center for Political Economy of Argentina (CEPA)consequences of “vast magnitude on the assets, which could not keep pace with the prices, given that the update formula has a quarterly ‘lag’”. In this sense, they indicated that in the comparisons of the assets with respect to November 2023, it was observed that the retirees:

• In January 2024, they received between 14.7% and 20.1% less in real terms than in November 2023 (depending on whether the minimum was with a bonus or above the minimum).
• In February 2024, they earned between 24.7% and 29.5% less than in November 2023.
• And in March, salaries were between 13.7% and 19.2% below those of November 2023.

“This modality involved the recovery of pensions from the bottom of the hole to which the Government itself had taken them”the report concludes. Although it contrasts with the official view: “Milei said, among the reasons for vetoing, that ‘since we came to power, pensions are 5% higher, that is, pensions have beaten inflation.’ This is not true. Pensions have not gained purchasing power.”begins the report.

The problem is comparativeaccording to the Center, and has a “trap”: “It compares a month that is the last one prior to the quarterly mobility update (November 2023) against a month that had the update incorporated (August or September 2024).” Along these lines, Retirements without a bonus in the September-November 2024 quarter will remain 4.6% below the same quarter in 2023, while retirements with a bonus would be 13.6% below.

Hernan Letcher, of CEPA, explained to Scope that Comparisons are made quarterly (compared to the same period of the previous year). The cited case takes from September to November, because it is the last quarter of the previous government and November is the month compared by Milei. In addition, they use this data because They already have estimates of what will be charged in November.

Frozen bonds as an adjustment variable

Along with the loss resulting from the change in formula and the high inflation at the beginning of the year, The compensatory bonus received by 70% of retirees was frozen at $70,000which generated a month-to-month dilution of their purchasing power. Therefore, those who receive the minimum wage have not yet recovered the purchasing power of November, but rather In September 2024 they are still 2.6 points below and 20.3% below the same period in 2023.

While salaries increased between March and September by 74.3%, The minimum, with bonus included, only increased by 48.9%. If it had been updated in the same proportion, The bonus should be $122,010 in Septemberthat is, $52,010 more than the current amount.

Pensions with no possibility of long-term improvement

The new mobility formula decreed means that pensions do not lose out in a scenario of high inflation, but it does not make it possible for pensioners to aspire to improve their current situation in the long term. “The update decided by Milei considers that the current purchasing power of pensions is the maximum that retirees can aspire to”catapulted the report.

“The Government decided that the adjustment resulting from the aforementioned modifications and what happened in terms of prices would not be mitigated through an income compensation policy. Its decision was to liquefy the assets and thus achieve a fiscal surplus: in the first three months of 2024, pensions accounted for between 32.9% and 37.0% of the total adjustment,” the document added, specifying that “Retirees remain in first place among those who supported the fiscal accounts with their cuts, explaining, between January and July, contributing 27.7% of the total surplus“.