the zero deficit is complicated and Macri raises taxes

This seems extracted from the antipolitics manual, but no. It is a fact: the government, in the midst of an election campaign, applied an increase in taxes.

For the first time in 20 years, the so-called "statistical rate" went from 0.5% to 2.5% in the pending "closure" pending public accounts. The measure provoked the inevitable bad mood of the people directly concerned (importers), although its negative impact on the real economy is worrying.

The management of the crisis and the respect for the adjustment agreed with the International Monetary Fund lead to contradictions such as, while Mauricio Macri himself is launching a ten-point political agreement – including one in which he advocates tax cuts – his finance minister has announced heightened tax pressure.

The subject has been criticized from all angles. On the political front, those who pointed out that this reduced the credibility of the government's call for dialogue with the opposition are on the agenda. And, among the business people, predictable blunders have been heard in the face of a further increase in the tax burden, just when what is claimed is relief that gets out of the recession.

There is an explanation for such a contradiction on the part of Macri. It is the demanding goal of achieving the "zero primary deficit" created in the last agreement signed with the IMF. The only way to achieve this goal, for which the collection must be balanced with government spending, as badessed by the executive, is to increase the tax burden on those who already fulfill their obligations.

In fact, Leandro Cuccioli, head of the AFIP, has just acknowledged that the best (and necessary) would be to reduce VAT payment fraud. "From 33.5% to 23.5% currently, which is close to the average of the region," said the official. Of course, this goal could only be achieved in five years.

For now, the Treasury has no choice but to punish some and, in any case, to give oxygen to the sectors most affected by the crisis. For this reason, it suspended the withholding tax on exports made by SMEs. And it has increased the refunds charged by automakers for vehicle sales abroad.

The pressure for public accounts, however, brings with it an increased tax burden, which is only one of the main obstacles to the competitiveness and growth of the Argentine economy. By the time Macri came to power, the tax burden was equivalent to 24 percent of GDP. Three and a half years later, it reached 26%, despite official promises and plans to reduce it.

For many, the government has fallen into a trap that will be hard to break. It consists in insisting on trying to balance the accounts in a recessive context.

It is one thing to achieve this goal with a growing economy, in which it is possible to put everything away. And another goal is to achieve this in a recessive context. Continuing in this business can turn the wrong wave spiraling. And the economic cycle, far from improving with the best budget data, ends up contracting more.

Official statistics show that the adjustment of public spending is in full swing. The figures for the first quarter of the year seem eloquent: while inflation reached 52% during this period, primary spending only reached 31%. No one can accuse Nicolás Dujovne of mishandling the duties prescribed in the Monetary Fund.

A report by economist Federico Muñoz extends this series of cuts. "Primary spending accounted for 24% of GDP in the second quarter of 2017. That proportion has fallen to 19.6%," he said in a conversation with iProfessionnel.

Translated into pesos, this 4.4 point adjustment of the product climbs to $ 1 trillion. Nothing less.

It is true that a large part of this contraction is related to the actual liquidation of expenses due to high inflation. But another big part has been paid with the categorical reduction of public works, whose execution is halved.

Savings on one side, savings on the other

Another variable that has so far played in favor of adjustment is expenditure on pensions, pensions and benefits. This is because social spending is indexed by past inflation. Last year, with inflation higher than 47%, pensions, pensions and allowances were indexed at 28%, which led to a decline in the purchasing power of these beneficiaries and at the same time AFIP accounts.

This effect will no longer be observed this year: the salaries of these beneficiaries will increase in parallel with the inflation of 2018 which, in the newspapers, will be higher than that of 2019. For this reason, there will be more savings for the public treasury.

Precisely, in the context of this narrower budget scenario and the obligation to reach the zero deficit, Muñoz has an idea of ​​what could happen: "Due to this year's devaluation, energy subsidies are increasing," he said.

Indeed, energy subsidies are almost quadrupled compared to what happened in the first quarter of 2018. Over the period from January to State reached $ 28.5 billion. 285% more than those recorded in the same period last year.

Another piece of information provided by Muñoz brings more light to this point. "Between January and March 2018, energy subsidies had fallen to 1% of primary expenditure. Now they have reached 4% of the total"he says.

These data only validate Dujovne's shared concern with the Fund's technicians regarding the tax situation. The IMF had already warned against a deviation from the fiscal target. He did it during the last revision of the program.

"They are scratching the pot," said Ramiro Castiñeira, during a dialogue with iProfessionnel. "The goals are very ambitious, but ads such as the increase in the statistical rate could become a boomerang: they affect the macro because of the higher costs that they cause. to make things better, "says the economist. head of the Econometric consulting company.

The IMF, under pure pressure

Washington's concerns about tax performance were outlined in its latest report on the country.

"Disappointing tax revenues over the past few months suggest that economic activity and the difficulties of the administration reduce fiscal soundness, showing that staff projections were too optimistic, "the technicians wrote.

At that time, the IMF required not only extreme prudence in spending. He also asked for alternatives to increase more. (We will have to) "take further steps to increase revenues so that the fiscal situation of 2019 reaches the primary balance," he said.

In fact, after having relaxed – to the point of contradicting its own status – issues such as monetary policy, the moment when everything indicates that the Fund will maintain its traditional rigidity is that of a balanced budget.

With no political opportunity to implement tax increases such as VAT or profits, the government first decided to take aliquots of withholding tax. Now he has returned to foreign trade, raising the statistical rate.

And in recent weeks, there have been versions – even in Washington – that the IMF would encourage a further upward adjustment of export duties.. An initiative that would be heavily criticized by the rural sector, just as soybean prices fell to their lowest level in the last decade, even below $ 300 a tonne.

Dujovne recently expressed his rather pessimistic view in the short term. "The collection will increase in real terms from the second half of the year," he said at a press conference, suggesting that AFIP's revenues would evolve again. below inflation also in the months of May and June.

However, the Minister has ratified the commitment to achieve the goal of zero primary deficit by the end of the year, while the acceleration of inflation and the intensification of the recession has affected the originally planned income rate but also current expenditures. .

One of the most recognized consultants in the city of Buenos Aires prefers not to be optimistic. "It will be very difficult to complete, the Fund knows, but in the middle of the campaign, nobody wants to raise a wave of waiver (sorry). There will already be time for that. "

"At the moment, the government has no other way than to take precautionary measures and try to comply, but no one knows how the film will continue" he concluded.

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