The statement from the President’s Office last week states that “the project approved this Thursday by Congress (retirement mobility) with the consent of all political parties is a moral fraud, an act of populist demagogy and fiscal irresponsibility; and therefore it will be vetoed by this Government.”
The aforementioned bill contains, among other modifications, an 8.1% compensation to reach the 20.6% inflation rate for January, given that the government had only given an additional 12.5% for this concept. It should be noted that since January of this year the minimum pension (including bonuses) is below the poverty line.
Projecting the annual cost “into perpetuity,” the president Javier Milei He estimated that the update of pension benefits under the aforementioned Law would amount to 370 billion dollars. Any significant expenditure, calculated in perpetuity, would result in an enormous figure. How can this figure be assessed in current terms, in terms of the impact on the lives of retirees, which is what Congress has taken into account when passing the law? It is not possible. It is just a mathematical trick that can be compared to the “17,000% inflation” supposedly inherited from the previous government, or many others of the same kind.
The Government’s approach is to treat the recomposition of retirement benefits imposed by the recently approved Law as public debt, an unusual proposition, and also assigns a negative connotation to this benefit for retirees. But this calculation is also wrong, because if salaries grow, so do pension contributions. And if the purchasing power of salaries increases, it is because the economy is also growing, which implies greater tax revenues.
Perhaps the imputation of “fiscal irresponsibility” carried out by the Office of the President, Shouldn’t it also apply to the reduction in rates on the Personal Property Tax promoted by the Government itself? The rate will be reduced until 2027, reaching 0.25% on that date, which removes any appearance of proportionality and progressivity. The Congressional Budget Office (CBO) estimates that, starting in that year, the fiscal cost of the reduction would be 0.61% of GDP, a very high figure.
It is also valid to ask why the Government pushed for such a low tax rate in the asset regularization law (called money laundering) when the benefit granted is enormous, and for people who, at the very least, evaded taxes.
If the fiscal result is of such concern, Why is there no progress in reviewing tax expenditures and other benefits that amount to 4.72% of GDP? For example, the exemption from Income Tax on the income of magistrates of the Judicial Branches; or the economic promotion regimes; or the exemption from Personal Property Tax on rural properties abroad; or the exemption from VAT on the fees of company directors.
The treatment of project 3978 D-2023, which was presented by the deputy, could also be expedited. Marcelo Casarettowhich several legislators from Unión por la Patria support, which proposes a 15% tax on the profits of large companies, as has been promoted by the G20 together with the OECD.
Fiscal solvency is not an absolute value. If it is resolved with higher taxation based on progressive taxes, it is praiseworthy. But if it is achieved, as this government is doing, with a chainsaw and a blender, the economy and society will continue to suffer intensely.
In another order of things, at the Council of the Americas, Milei asked businessmen to invest, and argued: “I tell you, do not be afraid, we have advantages that are often not seen, but that a large part of the world does not have, which are anchors that protect us from eventual storms.” The legislator of the ruling party, Jose Luis Espertpointed out that the current “recovery” will no longer be in the shape of a short “V”, but rather that of a pipe, in which, after a significant fall, the economy will undergo a slow but “very healthy” recovery and he again mentioned the well-known phrase: “there is light at the end of the tunnel”.
But rhetoric is not enough when reality does not offer favorable conditions for investing, producing or selling. The economic activity data released by Indec do not reflect signs of recovery. The EMAE for June registered a year-on-year drop of 3.9% and a monthly fall of 0.3%. In addition, it must be taken into account that agriculture continues to have a great positive impact, recovering after last year’s drought. Without this sector, the contraction of the economy in June would have been 8.3%, given that the evolution of other important sectors such as industry, construction and commerce continue to reduce their activity. In addition, consumption in supermarkets fell by 11.6% year-on-year in the first half of the year, according to Indec calculations.
As for the fiscal result for July, the collection, together with the adjustment, was sufficient to maintain the primary surplus at $900 billion, but not to pay the high interest for the month, so the financial result was negative by $601 billion.
The spending adjustment, accumulated during the first seven months of the year, was 30.9% compared to the same period in 2023 and was almost entirely explained by cuts in: retirements and pensions (27.7% of the total), capital expenditures (public investment, 22.6%) and economic subsidies (15.2%).
On the revenue side, while social security contributions have accumulated a real year-on-year decrease of 16.5%, also in the period January-July, the funds obtained through VAT were reduced by 8.5%. The PAIS tax and export duties were the only ones that grew (264% and 36%, respectively). It is expected that, according to what was stated by government officials about reducing the PAIS tax from 17.5% to 7.5%, and given that it will be carried out in a recessionary context with a fall in revenue due to lower consumption, the adjustment of spending to maintain fiscal balance will be worryingly greater.
In conclusion, the macroeconomic balances are not closing as the government hopes. The discussion will depend on the time that passes until Argentines become fully aware that what is happening is not the result of policies from years ago – without denying that there were errors and several issues that need to be improved – but rather the result of the current government’s own program, whose priorities do not include improving the quality of life of the majority of citizens.
National Deputy Union for the Homeland – President of the Solidarity Party
Source: Ambito
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