The coincidence is almost surprising. While year-on-year inflation in January 2022 was 50.7%, tax collection that month rose to 51.6% compared to the same period of the previous year. But while the Ministry of Economy made an effort to show it as a symptom of “the expansive trend observed throughout 2021”, the numbers show that, in real terms, the collection increased only 0.9% in total. And with an economy that is estimated to have grown 10% in that period, it poses a major challenge for economic policy in the face of the commitment assumed with the International Monetary Fund (IMF) to reduce the fiscal deficit, already starting this year at 2.5% of the GDP and so on until reaching the balance (primary, that is, before interest) in 2025. Is there room, then, to collect more?
obstacles. That road will not be easy and that is why the questioning within the ruling coalition itself. It is that in order to very gradually lower the fiscal red with which 2021 ended (3.1% of GDP), the economic policy of the last two years will have to take another direction in some aspects and, in addition, the winds are no longer as favorable as the last year.
The growth of the last twelve months was, above all, a logical rebound after the perfect storm that the economy entered with the pandemic. The electoral year ended with the fiscal savings of the first semester, consumed the US$15,000 million of trade surplus that caused the boom in agricultural prices, but also caused distortions that are now fighting for a new balance. The surplus was used to pay obligations to international organizations (in addition to the US$ 4,350 million delivered by the IMF) and to control the exchange rate gap since the official dollar was kept artificially low to constitute an inflationary anchor.
Two other accumulated pressures were that of controlled prices and frozen rates. While the remarks were already restoring relative prices, the discussions about the magnitude of the rate update grew in intensity. If until December the increase was estimated at 130% just to alleviate the situation, but the increases in recent weeks in the price of gas and oil have shaken the fiscal effort again: even with last year’s prices, if there are no corrections , the set of subsidies would demand US$14,000 million, almost 3% of GDP.
Collect. Without external credit to cushion the adjustment, the official focus points to tax collection. There are three ways to do this: raise the rates (as happened last year with Personal Assets), create new taxes (on high incomes, the PAIS) or reduce evasion. Another alternative is to hope that the reactivation automatically improves collection by osmosis.
At this point, the Government opted, for now, for all means except the creation of new taxes because it would not have the votes to do so, but also because there is little left to invent (it is estimated that today there are 170 operating taxes at the three levels administrative).
“To reach equilibrium in 2025, if you grow at 3% and you can maintain spending in real terms, with income rising at 4.5% in real terms each year, it is possible to reach equilibrium in 2025. But it is not easy and there are many challenges”, he explains. Nadin Arganaraz, director of Argentine Institute of Fiscal Analysis (IARAF). In his opinion, in a system like Argentina’s, there is always room to collect more to combat tax evasion or avoidance. Perhaps for this reason, the AFIP began the year by sending payment reminders or warnings of poor tax classification. But Argañaraz also estimates that only because of the reactivation there will be less weight of the informal economy automatically, with the “cascading” benefit also for the provincial and municipal order. “I don’t see that there is room to raise rates or create taxes, but I do see that there is room for greater formalization,” he concludes.
For his part, the economist George HillPresident of IDESA appreciate that the jump in collection based on internal activity is falling and it does not seem that the economy can grow this year the 3% that the Government projects so that the accounts closen, basically due to the strangulation of the external sector that affects industrial sectors in full recovery and the lack of investments that can make said process sustainable. In this context, he believes that getting tough with audits in the context of an economic contraction is aggravating the fall.
“Where the pressure could tend to increase is because of foreign trade. If international prices remain high, the national State may have a good collection of these taxes in 2022”, he affirms.
distortions. The Argentine case is peculiar. The total tax pressure (adding the national, provincial and municipal order) would have reached 29.5% of GDP in 2021. There are countries of OECD that have up to 10 points more and do not suffer the problems that the Argentine tax system does present. “Part of the great evasion has to do with the very high tax pressure on those who pay”, emphasizes the tax expert Cesar Litvin. However, what should be of most concern is not just a percentage in itself but the bias of the entire system that punishes investment and is cruel to companies and the few that do pay income or wealth taxes.
The latest modifications to Personal Assets widened the gap that separates the Argentine system from others that are more progressive and in which everyone pays something instead of a few paying a lot and others self-perceiving that they are not payers. It is what he calls an “anti-investment bias”, graphed by the latest World Bank survey “Doing business” in which, on average, companies that work in Argentina pay taxes on 106% of their profits against the average 45% of the OECD. A partner present in the good and absent in the bad. “The lack of investment affects the loss of employment, the increase in poverty and public spending, which has almost doubled in the last 20 years, making it very difficult to finance,” he points out.
Although tax evasion is measured and is closer to the 40% ceiling than the usual 30% of the entire flow of goods and services, there are some sectors in which evasion is much higher. The biggest hole is in consumption taxes (VAT, Gross Income and municipal rates) so that the control of said problem becomes a more politically sensitive issue. It is for this reason that it is more digestible to encourage increases in the aliquots to the patrimony or to focus on those who are already paying: hunt in the tributary zoo.
inflation again. To this mosaic that makes it difficult to comply with the voluntarism that an eventual economic growth accommodates the figures and cauterizes the conflicts, we must add inflation, which in the last three years had an average of 47% per year. With this magnitude, it is estimated that it is exercising its tax role with another 2% of GDP. “It is not true that inflation harms everyone. There are some who win. Colina estimates that the tax pressure of the provinces increases inertially with inflation due to the drag on Gross Income (almost 75% of their own collection).
and if we add inflation, the true fiscal sacrifice of the taxpayers who pay, we are at the highest levels (refining informality). But he also warns that with 55% per year as projected for 2022, there will not be investments of magnitude to grow an economy long stagnant at the 3% per year that the non-stop transition to the promised “zero deficit” in 2025 would demand.an increasingly utopian goal.
