The fine print of the May Pact proposed by Milei

As if to corroborate that The Argentine economy is going through a period of singularity that the recurring problems that consumers and producers fell into seem to have been relegated by new ones: the money supply implodes, the free dollar falls in real and also nominal terms! and Argentine bonds stopped being a bad word in international markets.e

The root. Suggestively, January and February were months of primary fiscal and also financial surplus, provincial governments hear a “no” when they ask for something outside of what was stipulated in the co-participation or even what they had negotiated to refinance debts; Transportation subsidy funds are scarce, the cheap public services scheme at the expense of the treasury is faltering and changes are being considered in the pension update, the figurehead of a comprehensive reform.

Finally, the solidity with which the labor market supported employment cracked, predicting a season of unemployment problems in all areas, something unprecedented for a system that showed the achievement of virtual full employment and retirement inclusion as achievements.. This entire “anomalous” situation is due to the decision to stop inflation at any cost.

And this means venturing into risky territory: Minister Caputo’s tactic of executing the directive to dry up the market to slow down prices involves precisely the tripod on which the growth of public spending that encountered innumerable difficulties was built in the last two decades. be financed. The triad of greater pension spending, more energy and transportation subsidies, and an open wallet for friendly governors, was what explained almost all of the increase in consolidated public spending in the last two decades.

According to calculations of IDESAduring that period from 2005 to 2022, The tax pressure rose to 28% of GDP: of the total, 14% is distributed between the Nation and provinces in halves, through the mechanism of federal tax sharing. In addition, the Nation adds another 9% that are taxes on foreign trade, which are not shareable. And the jurisdictions charge another 5% in local taxes, especially concentrated in Gross Income and territorial taxes (Real Estate).

If we consider In the 2005-2022 increase, consolidated spending (national plus provincial) increased from 24% to 42% of GDP, although there were estimates that raised it to 48% in some years. For this reason, while in 2005 the Nation reached 4% of GDP in fiscal surplus and the provinces as a whole did not reach 0.5% of GDP; In 2023 the numbers had reversed. The Nation was already in the red: -2.8%, but the provinces continued with their fiscal austerity and were left with a +0.7% surplus.

However, at the end of last year there was a fiscal novelty that the provinces had to swallow like a big toad: the virtual elimination of the personal income tax, which added to the cuts announced since December to balance the national red, reversed those accounts. Invecq estimates that almost all jurisdictions will go from surplus to non-stop financial deficit this year and wonders if the provincial response will be to adjust spending, raise taxes or issue bonds (with or without support).

In the sample there is everything and each government will respond according to its position, but, above all, the margin of negotiation it has with the Casa Rosada to be able to convert its legislative votes into financial oxygen. Because each province will be a world and not only because of the “political color” of each governor: there will be supposed allies who will suffer the free fall of their accounts more than others labeled on the opposite path but who will find shortcuts to come to the surface faster.

Inside accounts. In the exhaustive analysis carried out by Santiago Bulat for Invecq, the numbers show that from 2005 to 2022 inclusive, spending growth was more linked to spending in the total current provinces (+84% in real terms) than to that of capital (+33%). In turn, the Personnel Expenses category increased 83% but did not reach the peak of pension spending in the provincial jurisdictions: +105%, the result of the relatively good benefits offered by the provincial retirement system compared to the flattening of national assets. .

In this analysis, transfers from the national government represented 6.3% of the total income of the provinces (4.8% current, 1.5% capital, although very dissimilar: while for La Rioja and Santiago del Estero they represented 19.9% ​​and 9.4%, respectively, for Neuquén and Chubut it was much lower (1.7% and 1.9%).

For their part, tax resources accounted for 76.3% of the provinces’ total income (46.5% of national origin, 29.8% of their own) and there is also a disparity here.: Neuquén and Chubut (with income from oil royalties) are the ones with the lowest percentage (42.9% and 53.5%, respectively); very far from the average (76.8%), and from those that lead the ranking (Tucumán: 90.9%, Jujuy: 89.4%, San Luis: 88.1%, and CABA: 87.6%). Finally, the effect of the elimination of the fourth category of the Income tax would be equivalent to 3.7% of the total income of the provinces, but CABA would be the least affected (0.7%), while the most affected are Jujuy (6.2%), San Juan, Catamarca, and Santiago del Estero (6.1% for all three).

If the final cut in transfers outside of co-participation means a 50% cut in transfers and a 5% drop in tax resources, the provinces could lose no less than 10.7% of their total income. Although this exercise uses values ​​from 2022, it is evident that the situation will be high voltage for provincial governments, which have to pay the funds every month to keep the machinery that provides essential services in operation: salaries of police, teachers, health personnel, the judiciary and the administrative bureaucracy; which takes no less than 50% of the total budget on average.

What’s coming The accounts are not whimsical: after the failure of the attack in Deputies with the successive versions of the so-called Omnibus Law, the highlighting of the need for other economic policy instruments in addition to pure and simple adjustment. To do this, it is necessary to have the support of the provincial governments, guardians or directly owners of the raised hands in the legislative chambers..

A little more than two months is an appreciable period for, while the minister Luis Caputo looks askance at how inflation is slowly trying to approach July 2023 levels (6-7% monthly) from the step above the third quarter of last year (12% average monthly) while trying to project whether the “V” of The recession allows us to foresee an imminent rebound. At the same time, the possible foundations for a negotiation are laid in which no one wants to be the only adjuster. Structurally, it offers an opportunity to reset the tax system and the economic relationship between the Nation and the provinces. An excessive ambition if the day to day does not provide the minimum support.

Image gallery

In this note