After speaking Friday evening at the Casa Rosada, Economy Minister Luis Caputo and his closest collaborators began to receive insistent calls on their cell phones from different sectors – banks, investment funds, entrepreneurs – to find out firsthand how the government of Javier Milei entailed. Do achieve the goal of achieving fiscal balance by the end of the yearafter canceling a tax package that almost two of the five GDP points have been resolved which the President proposed to adapt.
The few who managed to speak with a member of the economic team were reminded of a statement that Caputo had made days before taking over as minister, in a meeting with bankers: “We have the tools to achieve zero deficit without depending on the legislative power. “You can make the adjustment even if Congress is against it.”
This claim, which had been forgotten, will have to be proven starting Monday. On the financial markets, it is believed that the government is taking a step backwards with the Omnibus law project It can shake up the financial and, above all, currency situation, which is still fragile.
Far from this view, the economic team believes that tensions should dissipate quickly. Overconfidence? Who knows.
What seems clear is that this is a renovation and perhaps more tough dispute with the governors, who seem triumphant at having rejected the government, especially regarding the issue of withholdings.
“Plan B” to eliminate the fiscal deficit
In Economy, with the full support of Milei, they have a roadmap or “plan B” alternative to the canceled tax chapter. We are at the head of this roadmap transfers of funds to the Provinces that fall outside the federal tax allocation.
Milei and Caputo repeatedly underlined that these transfers would be crucial in the negotiations with the Provinces. In the first tables that Caputo showed as soon as he took office, it was seen that in the “expenses” column to be cut, the transfers to the Provinces represented a saving of0.5% of GDP.
Clarion reported days ago that, according to official data, last year the total of the items corresponding to “discretionary transfers” had an assigned budget – current credit – of 2.25 billion pesos, equivalent to 1.3 points of GDP.
Most of the funds that go to the provinces and that the Treasury administers outside of sharing are associated with the National Teachers’ Incentive Fund; the Fiscal Strengthening Fund of the Province of Buenos Aires; the so-called Finance Act to Provinces and Municipalities and transfers to provincial pension funds.
It is worth remembering that in recent years the majority of so-called “discretionary transfers” have been made to the Province of Buenos Airesgoverned by Axel Kicillof and which is also the territory with the highest Kirchnerist density per voter in the country.
In this roadmap you could follow the update of the Fuel Tax, deactivated in 2021. Last postponement signed Sergio Massa coming soon in November 2023 and is in effect until next Thursday, February 1st. It is estimated that in this way they stopped collecting 2.5 billion dollars in 2023 alone.
Until last week (before the fiscal package dropped), oil companies took the upgrade for granted It would have happened this year, but not so fast. First, companies are keeping fuel prices up another 20%. They imagined, until before Friday, that a price increase would arrive a few months later due to the tax issue. It should be remembered that the latest increases in fuel they were filled into the coffers of the oil companiesprecisely because of the failure to update the tax.
A third adjustment factor could be the wage expense of the national government. This week there was an example: the joint venture was signed with a 16% increase, lower than inflation.
Ultimately, the idea behind this roadmap is that the cost of adjustment is shared by the nation and the provinces.
Economic officials describe this situation: Public spending is equivalent to 40 points of GDP, distributed half and half between the country and the provinces. Inside the part that corresponds to the Nation there are 10 points that correspond to social spending. There are another 10 points remaining and three points will be reduced from these, i.e. 30%. “The Provinces cannot contribute, they want the cost of the adjustment to fall solely on the State”, asks the economic team. In the Casa Rosada they added: “The provinces cannot continue to spend what they spend.”
This controversy will be visible from this Monday. Milei said he does not intend to give up on the goal of zero deficit by the end of the year
Source: Clarin
