In the United Kingdom, inflation has already engulfed the fourth Minister of the Economy in a year and the Prime Minister elizabeth truss, after only two months of management. Everything, with a record rate in 40 years: 10% per year and rising. In Argentina, with an economy stabilized in a range between 6% and 7%, but monthly, the distortions they produce in productive activity and people’s income multiply, but no one would think of asking for the head of the head of the Treasury Palace. Inflation has become naturalized as a phenomenon that crosses governments, parties and even generations. But, above all, it feeds back because whoever benefits the most from it, the Government, collects a non-legislated tax through this mechanism.
Speed. Since March there has been an inflationary jump with respect to what has been happening since the second half of 2020 in which the variables moved at 50% per year. This change is where you can see the change in expectations and how it impacts what economists traditionally called the “inflation tax” but that, in the Argentine case, should be recalculated to the detriment of the pockets of employees, freelancers and companies.
The first effect is what people who have cash in their possession end up losing, which depends on the amount of money in circulation and the rate of inflation. When the CPI rose between 40 and 50% annually, it was estimated that it was between 2% and 3% of GDP, so, with this acceleration, it could be between 5% and 7% of GDP because the inflationary jump is what that “ambushes” the demand for money.
But it especially affects the income tax, whose design, originally “progressive” ends up distorting all activity. For legal entities, the delay in being able to update the balances due to inflation ends up creating nominal profits that are fictitious on the those that collect the tax of between 35% and 42% depending on whether or not they are distributed among the shareholders.
For “individuals”, inflation operates by flattening the non-taxable minimum in real terms, from which the increasing rates begin to be effective, reaching 35% at its maximum. The Government’s decision not to automatically update these values affected the scope of the tax in three dimensions: the non-taxable minimum was not touched (it is still about $150,000 per month for married people with two children), the scales that follow the previous level and the amounts to be deducted (expenses and amounts for dependent family members). These values are gross and in the case of singles, even less ($110,000 per month). By establishing these parameters, it was estimated that the tax would reach 940,000 taxpayersbut inflation expanded that figure.
The already repeated solution when price dynamics widen that base is to establish a new “floor” below which the tax is not paid. In this case, it was $280,000 and now Sergio Massa announced that it would be extended to $330,000 per month, always gross values and for married people with two children. He said nothing about the tax parameters, a game that ends up depositing middle-class workers on the highest scale and establishing a gulf between an exempt person and one who pays almost the highest rate for only $ 100.
hidden fees. the tributary Cesar Litvin he has no doubts. “The rise in the income tax floor is an analgesic, but it does not cure the underlying evil that is the non-updating of the scales, the deductions and the non-taxable minimum, which remain unchanged”, he warns.. Even with the announced modifications, salaries under $330,000 will not pay Earnings, but several clarifications must be made. Litvin estimates that those who do pay start directly at the 31% step above the non-taxable minimum (which remains fixed) and immediately go to the next (the last) with 35%.
Other stone guests are the self-employed or “registered managers” in the jargon of the AFIP. “With them there is a huge distortion: if someone bills $330,000 per month, they would end up paying $790,000 each year if they are single and $650,000 if they are married with two dependent children., against nothing of those who are in a dependency relationship. Work dignifies and yields. If you are salaried, of course.
“The new Budget does not correct any of this. This has to be a law approved by Congress to thus update the non-taxable minimum, the scales, the deductions and not only the floor established discretionally”, Litvin clarifies. The economist and deputy Martin Tetaz He has already presented a project by a group of opposition deputies to update these values quarterly and thus minimize tax distortions.
Under pressure. The explanation for this tax nonsense is not bureaucratic slowness but the slogan of collecting to try to cover the black hole in which the fiscal deficit has become. However, against the prevailing feeling, the effective tax pressure has not yet exceeded the historical record that was that of 2015, according to the latest study by the Argentine Institute of Fiscal Analysis (IARAF). For 2022 it is estimated that the consolidated tax pressure (Nation plus provinces and CABA) will be in 29% of the total (24% federal and the rest, provincial) and it is not appreciated that it can be reduced too much because the National Budget project does not foresee substantial changes in terms of taxes for 2023.
Its director, the economist Nadin Arganaraz points out that this stability does not imply that it is the same for all those reached. In the first place, because tax evasion (which could border on the average 40%, but in some segments is higher) makes some people pay and others avoid or minimize their contribution. Municipal taxes, which are not calculated, could be estimated at an additional 1.5% and, of course, the inflation tax is not displayed.
Argañaraz also points out that what is called “tax spending” must be properly dimensioned, an issue that the Government has now raised in Congress and is estimated at 2.5% of GDP. In other words, they are exemptions that affect the tax base, which must be financed by collecting other taxes or in the budget. “If it is discussed to eliminate an exemption, for example, that would alter the effective fiscal pressure. I perceive that the Government sent this expense in a different way than in other years, inviting legislators to review it”, he analyzes.
A point that the always attentive and vigilant IMF raised in each quarterly review to close the fiscal gap that seems endless. Unthinkable ally to debate what is not so obvious: everything that one taxpayer does not pay is charged to another.
