Talking about taxes in Argentina, without referring to global public spending, would be as incomplete as forgetting to involve two other factors in the equation under permanent analysis: indebtedness and monetary issue. An explosive cocktail that in the last decade condemned the country to stagnation, untamed inflation, growing real indebtedness and a feature in which there seems to be no crack: the increase in tax pressure.
The pacts. Until 2017, when tax collection by the provinces reached a historic ceiling and reached 5.4% of GDP, the provinces were concentrating the collection of taxes on the most distorting of all: Gross Income. It came to represent almost 80% on average of all that was collected each year (4% of GDP) and on which all economists point without distinction of schools. But as necessity dictates, the governors chose to turn a deaf ear to the warnings about general inefficiency, punishment of formal commerce and encouragement of marginalization. But, above all, because the generalization of VAT was born to absorb that of II.BB.
The so-called Fiscal Pact of 2017 precisely aimed to agree with the governors the gradual reduction of these taxes and a path of fiscal responsibility that was cut off by the change of administration in 2019 and later by the pandemic, which melted all sources of financing that were leveraged on consumption.
President Alberto Fernández’s invitation to the provincial leaders to finance themselves, only four years after the most serious attempt to lower the local tax pressure (from 5.4% to 4.8% measured in terms of GDP), It will end in an increase in aliquots in the taxes that are already being collected and in urging them to adopt some fiscal genius, such as the one that taxes the free transfer of assets (by inheritance, donation or legacy).
The reasons for this green light to the collectors have an explanation in the need to close the tax gap as soon as possible, taking into account the forms that are already circulating in the negotiations with the International Monetary Fund and that should conclude with an auditable and consistent program in which, the black hole of fiscal red is key.
The bills. Although 2021 ends with a lower fiscal deficit than expected in this year’s budget (4.5%), the truth is that it was achieved irregularly: a first semester with overcompliance and adjustment (on pensions and salary spending, in general ), with the elections in sight, that path was deviated. There was more activity, more consumption, but also a push in prices that, even controlled, will end the year above 50% per year. The anchor of an “official” exchange rate that rose less than half that of the CPI determined that the Central Bank’s international reserves are projected to almost zero by March, when the moment of truth arrives: the first payment to the IMF without money .
However, the simplistic view that in order to eliminate the deficit, it is necessary to throw out the gnocchi of any political sign does not fit with reality. The main item in the budget is the one destined to retirements and pensions, which takes between 55% and 58% of the total depending on the year. According to a study by IDESA, spending on personnel represents 9% of national public spending and does not reach the 12% that is used to subsidize the price of electricity, gas and transport represents, much less, 19% to pay interest by the Central Bank and the Treasury.
But another item to take into account is discretionary transfers to the provinces, which is a way of aligning wills that are worth more in a Congress without absolute majorities or by simple political alignment. In this swarm of equations, there is an urgent need to cut back, but behind every expense there are interests, people, localities. Repeating what was done in 2021 in which higher inflation partially liquified pensions and public sector salaries is not sustainable in the long term. Jorge Colina, President of IDESA affirms that, although this year there was growth, as the economy was slowing down (only in 2022 could it reach the level of 2019), “raising taxes means deepening stagnation, precisely what this government criticizes the recessive recipes of the IMF ”.
The rejection of the Budget left the ball stinging for the ruling party to exhibit the need to vote on tax laws that were included in said bill. But he also took the opportunity to start tapping the rates of the Personal Property Tax, which tightened the tax burden on those who paid the most, even those who had not declared assets abroad. The balance between raising taxes on wealth (as in this case) and recognizing the updating of the floor so that those who are in no way rich do not pay it, seems more like a dialectical game than a specific fiscal result. The other tool at hand was the request to the provinces to copy the one in Buenos Aires, which for a decade has had a tax on the free transfer of goods.
Inheritances. For the tributarist Cesar Litvin, the lien is very difficult to argue and even more complicated to avoid the multiplicity of taxation that often results in the courts. As the tax base is assets that have already been paying for Personal Assets, I would be paying again; and a triple if it is a registrable asset (for real estate, patent or vessel registration, for example) or up to a quadruple if the asset in question is located abroad and therefore has a surcharge. “What is coming is a path of more effort and fiscal sacrifice. Because in any case, those who won are those who should not have paid this tax, which they came only as a result of inflation. In his opinion, the big losers are those who consume the most and for that reason “they are discouraged and think about doing business elsewhere: the increase for them is close to 50%”, points out (they rise from 1.25% to 1.50% and up to 1.75%)
However, despite the attractiveness of “equal opportunities”, the “inheritance” tax only collects 0.2% of its total tax resources in the province of Buenos Aires. Marcelo capello, Chief Economist of the IERAL estimates that “It is likely that in other provinces that implement it, the same thing happens and it would be one of those cases in which the collar would be more expensive than the dog: investments and taxpayers would be driven away, to collect very little”. Capello gives it a more general approach, remembering that “In Argentina there is already a wealth tax (Personal Assets), which in 2022 will increase its aliquots, which in 2021 a special tribute was applied to large fortunes and now the intention is added that the provinces create their own inheritance taxes “, synthesize. And he emphasizes that the country is one of the three that have this type of taxes, along with Uruguay and Colombia, although they do so with higher floors and lower rates.
It is that this fiscal impulse is not decoupled from the trend indicated at the beginning: trying to finance an expense that was always increasing and that only found respite in the years of fat cows: when commodity prices winked at the old habit of overspending . A good harvest has saved us… almost always.
