After decades of dismissing the negative consequences of fiscal deficit constant, it seems that we have finally achieved a consensus between politics and citizens on the need to organize public accounts to lower the inflation and stabilize the economy. Now, how should this fiscal adjustment be carried out? As if we were using a scalpel, to do it efficiently and minimizing the social impact.
Let’s recap a little. In the last 50 years Argentina registered an average fiscal deficit of 4% of annual GDP, which was financed with increased taxes and public debt. When financing was scarce, the different governments appealed to the use of the reserves and the monetary issue of the BCRA.
The recipe is old and it has been proven that it does not work. However, eliminating the deficit is not an easy taskrequires a economic plan and political consensus. On the economic level, it is necessary to generate efficiencies in spending and collection and in the political sphere it implies interfering in the interests of the sectors that benefit from the current structure of expenses and income.
The reduction in public spending should continue efficiency and equity criteria, to reduce the recessive and regressive impact. Raising taxes is not a viable option: we have one high tax pressure and a totally distorted tax structure. According to the IMF, in 2023 Argentina had a tax pressure of 34% of GDP, similar to that of Switzerland (35% of GDP) and almost double that of Latin America (20% of GDP).
Furthermore, one of the main sources of financing for the Treasury is the Country Tax, which taxes imports and expenses in dollars and would represent 2% of GDP in 2024 (US$12,884 million). This tribute cannot be sustained over time given that it makes the inputs and capital goods necessary to produce more expensive. Therefore, to lower this tax and maintain the strategy of eliminating the deficit, a greater fiscal effort is required.
The key is not to collect more taxes, but to actually collect them. And Argentina has space to carry out this task. There are some expenditure items that represent almost 5% of GDP, which arise mainly from taxes that are not being collected, which have a relatively low social impact for the majority of the population.
On the one hand, we have the 29 Trust Funds, which take close to 2% GDP. Many have accessible objects, but they tend to be handled in non-transparent ways.
Tax Spending (tax exemptions or promotions granted annually by the Treasury) accumulates another 2% of GDP, while the Health sector still has benefits that were established in the pandemic, for 0.5% of GDP.
Separate chapter is expenditure of Public Companies, which amounts to about 0.6% of GDP. Some privatizations and improved operating results could contribute to reducing this figure.
But let’s go to one of the most surprising cases, like the exemptions received by Tabacalera Sarandí and other local SME companies, which stops paying nearly 800 million dollars per year, which represents about 0.12% of GDP in internal taxes on the sale of cigarettes. Although this tax avoidance has its origin in the precautionary measures granted by Justice, the Executive and Legislative powers could act and modify the law to correct this loss of fiscal resources.
We are facing an opportunity like no other to end the macroeconomic imbalances that generate instability, chronic inflation and recurring crises. Society demands a solution and has shown that it is willing to support measures that go far. Lowering spending and collecting better, paying attention to these real holes for the treasury, seem to be the tools. All you need is will and the precision of a scalpel.
Economist
Source: Ambito
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