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Under previous administration, it was critically criticized that public spending exceeded income and much more than the growth of the economy. Does this trajectory change?
Beyond the signs of austerity, the most solid data in this regard comes from the recent update of the budget and economic forecasts for 2018. The presentation, made by the Minister of Finance, Felipe Larraín, shows that the data have been adjusted to the reality of today compared to September 2017, the date of the 2018 budget.
The evolutions have been very positive, the growth projections having (from 3% to 3.8%), domestic demand, copper prices and income, among others. But adding and subtracting, the economy is growing but tax performance does not seem to show big changes. And everything seems to continue to crucially depend on copper
The economist and former chairman of the Tax Advisory Board, Andrea Repetto, has warned of an upward trend in spending that does not appear to be safe. Stop. He added that by 2018 "the government expects it will spend more (yes, more) than budgeted for this year." Even if we subtract the budget adjustment announced for just over US $ 1 trillion, budget spending will increase by 4.5% this year. That's more than the approved budget of 3.9%; more than the growth of the projected economy to 3.8%.
What happened? In simple, that he badumed the "expenses incurred without funding" that Minister Larraín denounced in April and that this caused controversy.
In the midst of a tense budget debate, the announcements of the Minister of Finance, Felipe Larraín, were criticized
So, at least, the market has interpreted it. Gemines Director of Studies Alejandro Fernández explained that in order to "avoid showing a worse fiscal situation", commitments have been omitted, mainly in the area of health, which should have been integrated throughout the period. ;year. With fiscal adjustment, he said, the Treasury is seeking to prevent spending planned for this year "from even growing by more than 4.5%." Econsult's director of studies, Sebastián Cerda, is agree, adding that given the reality of the pressures on expenditures incurred that were not included in the budget or in the Treasury, "fiscal adjustment is essential to ensure the structural position of the accounts public. In other words, without budgetary adjustment, the 2018 budgetary situation would appear even more degraded. "
Said pressures on expenditure (particularly in health) are not, they are nothing new," said the Director of the Center. Financial Studies of the University of Los Andes, Cecilia Cifuentes.He commented that they were a constant in the previous government, which faced the current and current expenditure surplus. under-execution of the investment. "This may not have appeared in the speech, but the data existed and this is not news," he said. he argued that "this inertia of greater tax expenditures is worrisome" and warned that spending pressures "are a complex issue that needs to be closely monitored."
The economist at the Pacific Research Cabinet Igal Magendzo affirmed that is the validation of the dep health authorities, the authorities must be explicit in identifying "what it is and what they do to fix it (or not) in the future". Regarding the fiscal adjustment, he said that it is striking that the freely available expenditures that the government inherited have been incorporated, since "this money is budgeted to be spent, which is exactly what which is done. He added that, regardless of these resources, the containment effort is US $ 700 million and not US $ 1,063 million. "Anyway, it is an important effort.It would be interesting to know how much progress has already been made or whether the total savings will be realized in the second half of the year."
If the reality is that it is There are more expenses to finance, it is important to know where the resources come from. In his review, the Minister of Finance raised the copper price forecast for this year from US $ 2.88 per pound to US $ 3.12 per pound. Until June 30, copper reached an average of US $ 3.14, but has declined since then due to market volatility caused by the so-called US-China trade war
At 0:00 this Friday, begin to govern the first tariff measures announced by the two powers.
Analysts agree that the caisses receive about $ 60 million a year for every extra cent. in the price of copper; therefore, these 24 cents can mean tax revenues of about 1,400 million US dollars. This, of course, if the price comes back, what the Treasury expects. Also the market. "Although this projection looks optimistic given the recent fall, in my opinion, it is correct," said director of macroeconomic security, Cesar Guzmán, who explained that in addition to the annual average "several Recent macroeconomic factors are transitory. "
Doubts are rather whether the recovery will be as strong as necessary. The chief economist of Itaú, Miguel Ricaurte believes that the protectionist attack "will not increase beyond the first round of tariffs", so he expects that the price will come back at the end of the year in the United States. $ 3.1 per pound. But he warns that the Treasury review "could overestimate the end result if the price stays low for a long time."
From BCI, economist Antonio Moncado also agreed that "there should be a price increase," but the question is whether the magnitude estimated by the Treasury is what should be specified Probably, US $ 3.12 per pound in the current environment seems somewhat optimistic, as it would require a significant rebound towards the end of the year compared to observed levels and in a trade war scenario. "[19659004] Another source of concern for It's time to add income in a scenario of rising tax expenditures, as is the case for non-mining taxation. The figures presented by the Treasury show a decline in this base in 2017, especially in the area of corporate tax, situation maintained in the information from January to May 2018.
What's going on? The Banco Santander economist Fabián Sepúlveda explained that in 2017 the basis of comparison was unfavorable, due to the transitional measures of the Tax Reform that contributed to the extraordinary income in 2016 (Capital Registration and Substitution Tax at FUT). Since it was extended in the first quarter of 2017, some of this more demanding comparison has remained. The base of the Tier 1 tax also fell significantly in 2017 as the recovery was less than expected.
Cecilia Cifuentes acknowledged that these transitional elements contributed to a relevant set of tax revenues, but clarified that if corrected by GDP and the price of copper "the collection of tax reform was well below what was projected ". He explained that, excluding the contribution of large mining, between 2013 and 2017 the collection of the tax rose from 15.6% of GDP to 16.7%; an increase of more than one point, against a target of 2.3 points. "The data for 2017 shows that in the non-mining part there are fewer collections than was estimated, so although the economy is growing, the government has had to lower the estimate of revenue. non-mining taxes, "he said.
However, a higher copper price and higher activity led the Treasury to increase the tax revenue projection from 7.4% to 9.6%. "The upward revision of copper (higher incomes) is almost entirely offset by lower revenue from income taxes.The essential of the $ 580 billion income difference for the year comes from other lines, a balance sheet that the Treasury attributes to stronger economic growth.At the end of the day, the main business is the main responsible for the expectation of higher income, " said Miguel Ricaurte.
A similar opinion to the economist Banco Santander, who baderted that the revision of the price of copper is 0.5 points of additional GDP in the estimate of income, which explains the bulk of the increase. "Regarding non-mining income, the main badumption is that domestic demand would increase by 4.8%, which seems to imply a recovery in investment higher than what has been seen in recent years. figures, "he warned. Is the budget deficit contained?
Up to now, there are several apparent paradoxes in the budget puzzle: there is an adjustment, but 2018 spending will exceed the approved budget; the financing of an increase in expenses depends on the advance of the price of copper, which can be complex in the middle of the trade war; the economy more than doubles the strength of the previous year, but business collection is still slow.
In this scenario, the question that sums it all up is perhaps whether the actual (annual) fiscal deficit is contained or not. The figure fell to -2.8 last year and it was estimated that it would improve to -1.9%, but the Treasury revised it to -1.7%.
Image credit: Ministry of Finance
"This is a realistic projection, given the current scenario," said the director of Econsult Studies, referring to the best activity and the price of copper, which offset the decline in non-mining revenues . But he adds that there is a risk that the average annual copper price will be lower than what was projected by the Treasury.
The Director of Studies at Gemines is less optimistic, who notes that while the scenario is better than last year, he considers it extremely optimistic and very difficult to achieve "the forecast of a copper price of US $ 3.12 per pound. "With a more reasonable badumption (US $ 3 per pound), the actual deficit would reach between 1.8% and 2.1% of GDP," he said, adding that "the more GDP growth is strong, more The deficit will approach the figure projected by the Treasury, but it is difficult to reach 1.7%. "
The BCI economist argued that with an average price of about $ 3 a pound, the additional effective income would be about $ 700 million, which would reduce the forecast of the effective deficit to its initial value (-1.7%).
The economist consulting firm Pacífico Research considers that the adjustment to the "effective deficit" located on the optimistic side, both because of the projection of copper prices and non-mining tax revenues. "I think it's very likely that we will end up with a larger-than-expected deficit," around the 2% GDP deficit, he said. He added that the lower collection did not charge "could also lead to a structural deficit a little bigger than the projected one".
