The key to 2025 in fiscal matters will be the recovery of economic activity. And that is because next year the national government is going to do without the income that generated the COUNTRY Tax during 2024, which clearly served to achieve the surplus, in addition to what was provided by other aid such as money laundering and the moratorium.
The question that analysts ask themselves is where the resources are going to come from to be able to sustain these numbers. And the answer will come in at least three key ways. One will be your own recovery of economic activity which from the Palacio de Hacienda, Luis Caputo imagines at 5%. The other factors that will intervene will be the drop in debt interest paymentsas a product of the use of capitalizable financial instruments, and the halving the deficit of public companies. At least that’s the roadmap Caputo envisioned for next year’s budget.
But it must be taken into account that the This year’s inflation will be somewhat higher than that predicted by Economy and that of 2025, which is estimated at 18.5%, is very optimistic. The effect that this will have on the accounts is that if spending grows what the budget says, strictly speaking, it will be very below the evolution of the CPI, which in real terms would result in a fall, instead of an expansion of the same.
With or without Budget 2025
Presumably Whether or not the guidelines sent by the national government to Congress are approved, the bulk of fiscal policy will be directed in that direction.even in the event that the 2023 Budget has to be extended once again.
The numbers in terms of real spending growth and the income They seem more generous than they are if they are considered in terms of GDP. Everything would indicate that the “chainsaw” will continue, although perhaps somewhat more limited, as long as the inflationary pattern of 18.5%. If, on the other hand, prices rose to 38.4% As the consultants of the Market Expectations Survey (REM) of the Central Bank estimate, the projections would change dramatically.
As indicated the Government project, andThe Treasury Palace hopes that the income totals grow by 4.4% in real terms regarding 2024. In terms of spending, the primary would increase by 5.7% in real terms and the interest on the debt would fall by 10% in real terms. Total spending would increase by 4.2%.
The only primary expenditure that would have a real decrease in 2025 is that related to the operating deficit of public companies, which would be reduced by 55% compared to this year. The primary result would continue to be positive, although it would decrease in real terms by 8.4%.
According to the Argentine Institute of Fiscal Analysis (IARAF), The largest budgeted expense will be largely financed due to lower spending on debt interest and in it operating deficit of public companies.
Expenses and income in terms of GDP
In terms of GDP, what is forecast for the year 2025 would imply much smaller variations than those of 2024. On the Total income is projected to decrease by 0.16%. That is, although they would rise 4.4% in real terms compared to 2024, total income in relation to the economy would fall, because GDP would grow more, at 5%.
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For its part, primary spending would go from 15.12% of GDP in 2024 to 15.16% of GDP in 2025. That is to say, it would have an increase of 0.05 percentage points of GDP. Debt interest would fall 0.23 points from 1.53% of GDP in 2024 to 1.31% of GDP. In that way, andTotal spending would go from 16.65% of GDP in 2024 to 16.47% of GDP in 2025. This means a drop in total public spending equivalent to 0.2 percentage points. Also, if spending is expected to rise 4.2% compared to 2024, as GDP is going to grow 5%, in real terms it will be falling.
The primary outcome would remain surplus of 1% of GDP, and the fiscal result would increase slightly to a surplus of 0.03% of GDP.
The necessary economic recovery
In this regard, the Center for Political and Economic Studies (CEPEC), points out that “according to the budget project, the Argentine Government aims to achieve fiscal balance in 2025.” “The P.B.Yo It is projected with a 5% increase by 2025, so it is implicitly recognizing an increase in activity.Yodad, driven mainly by industry and commerce,” says the study center.
The report considers that for next year “two important factors appear, one is that the basis of comparison is going to be very badso statistically it will have a positive comparison, and the other is that collection began to show improvements, at the margin, still below inflation, but the cumulative figure for the year begins to reverse that trend.”
“We see it as central to ensuring an increase in revenue that supports economic activity: There does not seem to be room for more adjustments without generating social risks, so without an increase in activity and therefore employment and consumption, it will be difficult to maintain the fiscal line,” they warn in the CEPEC.
The fiscal rule
As the article says one of the budget project, the result must be balanced next year and beyond. If the law is approved, then it will be fixed as a rule, otherwise it will depend on the political will of Milei’s government. The Argentine Association of Budget and Public Administration (ASAP) states in this sense, “any deviation in projected income that negatively affects the financial balance must be compensated with a cut in expenses.”
“To this end, items not subject to a legally established minimum execution amount must be cut in the necessary proportion in order to reestablish the aforementioned financial balance,” the study states.
The tax reform that Guillermo Francos promises
In recent In statements, the Chief of Staff, Guillermo Francos, pointed out that the Government is working on a tax reform that would simplify and eliminate some taxes. What would they be? In principle, it would have to aim to reduce withholdings on exports. Another candidate to disappear is the Check Tax. But As can be seen from the answers he gave to the senators in his last report, the tax reduction will depend on achieving a structural fiscal surplus, That is, it does not depend on “anabolic” as was the case this year with the PAIS Tax, the moratorium and money laundering, which added extraordinary income.
Source: Ambito
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