Amid tensions with governors over the omnibus bill, the government has begun to do so review million-dollar funds sent to provinces through discretionary transfers. This is a 1.5 trillion dollar fund that does not depend on automatic transfers linked to co-participation or special laws, and which the ruling power usually uses discipline undisciplined efforts.
The Minister of Economy, Luis Caputo, He highlighted this spending this Wednesday by warning online that he met with his team to outline the provincial items that will be “immediately cut” if any of the economic articles of the bill are rejected. Already in December he announced that he would “minimize” discretionary transfers to the provinces.
The plan agreed with the International Monetary Fund envisages a primary surplus equal to 2% of GDP through a tax increase and a spending cut, including a reduction of 0.5% of GDP in current transfers to the provinces. But the terrible fiscal data for 2023 (the deficit was 6 points, instead of 5) and the refusal of governors to increase withholdings have once again put a magnifying glass on discretionary funds.
According to Empiria, the consultancy firm of former Economy Minister Hernán Lacunza, Nación transferred $725 billion in 2023 for financial assistance (“very discretionary”); $442 billion for food policies, health, education and pension funds (“fairly discretionary”); and $356,000 million for the National Teacher Incentive Fund, among other items (“less discretionary”).
The thickest line includes National Treasury Contributions (ATN), consisting of 1% of the sharing amount. Caputo could turn off that faucet, which administrations are used to managing and then opening as they wish. “Néstor and Cristina Kirchner used them to compensate the provinces for the debts they owed to the nation”, explained Marcelo Capello, economist at IERAL.
The district that would be most affected in the event of a cut in discretionary funds would be the province of Buenos Aires: benefited most last year ($763 billion) from ATN, transfers to pension funds and, above all, from the Buenos Aires Province Fiscal Strengthening Fund, created in 2020 with the withdrawal of resources from the city, according to Empiria.
The Province gained weight in automatic and discretionary transfers from 19 to 26% between 1985 and 1995, when the Conurban Fund was created under the direction of Eduardo Duhalde; It fell to a low of 18% in 2014 during the conflict between Cristina Kirchner and Daniel Scioli, and has received more discretionary money since 2016, reaching similar levels to Duhalde under the management of Axel Kicillof.
In the ranking of the provinces that received the most discretionary funds in 2023, followed by the City (149,000 million dollars), Santa Fe (66,000 million dollars), Córdoba (60,000 million dollars), Chaco (43,000 million dollars) , Entre Ríos (39,000 million dollars). million dollars) and Tucumán (35,000 million dollars), without counting the capital transfers intended for public works, another item subject to opaque negotiations.
Behind the controversies with the Provinces emerges the struggle for “co-participation” in the adjustment. The governors see that the increase in personal income tax for employees (0.4% of GDP) does not come close to the increase in withholdings and PAIS (1.2% of GDP), two taxes not shared with the Provinces, nor much less compensate for the cut in discretionary transfers (0.5%).
On Tuesday the government had agreed to concessions to the governors of JxC (participation in city funds, participation in money laundering, maintenance of some trust funds and settlement of pension debts with the FGS before their transfer, etc.), but they have not were suspended after the CGT strike and Caputo’s warnings to tighten the recovery in the provinces.
Considering the sharp decline in funding last year and the difficulty of reducing pension spending and privatizing companies, the commitment to the Fund appears increasingly difficult to maintain. “The most they can aspire to is a primary equilibrium, without interests, with all these changes, everyone fighting for their own, the adjustment is the other,” said a source close to the government.
Source: Clarin
