The contribution to the fiscal surplus made by the reduction of transfers to provinces is marginal. With or without a reduction in transfers, there would still have been a financial surplus.
The contribution to financial surplus of the Nation The fact that the cut was made to the provinces is marginal, next to the reduction in the real value of social benefits. Especially retirements. The National Public Sector, in January 2024, presented a primary surplus of $2 trillion which, after paying interest of $1.5 trillion, yields a positive financial result of $500 billion. The last financial surplus was in May 2011. It should be noted that, at that time, public accounting did not yet record interest on the defaulted debt nor the lawsuits that were accumulating due to retirees whose mobility was not respected.
Primary spending fell 39%. The liquefaction of public spending generated reactions as expected, where the strongest is from the provinces questioning the cut on non-automatic transfers. But our view of the conflict may change if we analyze the contribution of the drop in provincial transfers to the total reduction in spending. To do this, we can take data from the Ministry of Economy and we see that the reduction in current and capital transfers to provinces is equivalent to $0.4 trillion. The savings due to a real drop in spending on public employees represents $1.2 trillion. While the savings due to a real drop in social benefits is equivalent to $3.8 trillion, of which 66% corresponds to retirements.
In short, the contribution to the fiscal surplus made by the reduction of transfers to provinces is marginal. The liquidation of retirements, family allowances and assistance plans are 10 times more. In other words, with or without a reduction in transfers to the provinces, there would still have been a financial surplus. Therefore, the level of conflicts they are generating is disproportionate. The provinces are the least affected by the liquefaction of spending.
In itself, any adjustment based on liquefaction is sustained as long as there is inflation. If inflation falls, the effect will be the opposite. The unions are going to put pressure to rebuild salaries and the adjustments due to the mobility formula in pensions and family allowances will make spending grow above inflation. The positive financial result would tend to be reversed. For this reason, today, the preponderant thing is to establish genuine and sustainable sources of fiscal balance.
In summary, to achieve sustainability, a comprehensive organization of the State at the three levels of government (nation, provinces and municipalities) is unavoidable. There is no way to eliminate chronic financial and management deficits without eliminating overlaps in both taxation and public expenditure administration. Nor would unilaterally promoted national or provincial tax reform be desirable, since an agreed reform is needed to unify and simplify taxes. To migrate towards a sustainable fiscal balance, agreement and joint work between the Nation and the provinces is mandatory. A serious and informed dialogue should prevail on how to organize the federal regime.
Professor at the University of CEMA.
Source: Ambito
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