On the pipeline: how to finance infrastructure works without tax burdens

Nobody doubts the benefits of building infrastructure in the country. The discussion is born how to do it. By its very nature, the responsibility for public works rests with the state. But this does not imply that the state has to build them neither with own means nor through third parties.

The priority in a public work is that it provides a service and this is achieved when it is finished and enabled. A bridge missing by one meter does not perform the service of joining the two banks. An airport without signaling, even if it is a very low percentage of the total investment, since it is not enabled, does not provide service to aircraft. A control unit without wiring to the interconnected system does not provide the electrical service. All investments made in the bridge, airport or central of the examples cited, he is dead if he does not provide the service. It is buried silver that has no social benefit even if it was administered by Robespierre or Elpidio González and there is not a single premium.

In order for a public work to be completed, it must have itensured a flow of funds which allows to complete the totality of the investment in the years of duration of the construction. The volatility of economic activity in Argentina coupled with a pro-cyclical tax structure (i.e., tax revenues have greater variations – up and down – than the already volatile GDP) makes it impossible to guarantee the provision of funds of the State for Public Investments.

We think that the application of tax revenue has three main uses: 1) Current expenses 2) Debt services and 3) Capital expenditures. The order I gave them was based on inelasticity of the same before the variations in the collection of taxes. A government, faced with a decline in public revenues, the first thing to cut is capital spending. The completion of a course can always wait another year, but not the salaries of employees, pensions or the payment of public debt.

Many believe the solution is to create a specific tax where what it has collected can only be used for the execution of some public works previously specified at the time of creation by the Law. naive they believe that an executive power and a legislative power will not change the purpose for which the tax was created when they do not have to pay teachers. The IMF itself preaches the “single cash” criterion, that is, everything that enters the State no longer has a specific application to become part of the Revenue Agency. It is logical that this is so because what the IMF wants is to have as many resources as possible to allow the repayment of the debt. Today, for example, the Tax on fuel transferswhich was created in 1932 for Vialidad to build the main road network, it is basically meant to pay pensions and for general income of the Nation and Provinces.

Others believe that the state must go into debt to carry out the infrastructural works. In this case I prefer to quote Giovanni Battista Alberti because it is impossible to overcome it: “In the new countries, where competence abounds more than judgment, often the name of public works loans is given to what really is public works on loan. Thus, as soon as the loan is obtained, the public work is rendered useless. The more unattainable it is, the better the work serves its purpose, which is the loan itself, not the work. When it is not unfeasible, the loan money is used to frustrate it, as a necessary means of ensuring its true application, which is its simple possession and enjoyment as an instrument of power and convenience. The loan with Cheating He had to do jobs in Buenos Aires. The works were not done but the debt remained.

Historical experience shows that the success stories of public works have been when the state did not do it, but it did. The case of the railway lines it was a PPP (Public-Private Participation) avant la lettre. The state has not devoted a weight of its meager coffers to the construction of railways. Those who made them were privately funded at the London Stock Exchange. As investor income would only start when the railway started carrying passengers and freight (service) they rushed in carrying out the necessary work.

From 1908 to 1911, 8,000 kilometers of railways were built when the GDP was 5% of the current one. Today, with an economy 20 times larger than it was then, it would seem pharaonic and foolish for a government to say it will travel 2,000 kilometers a year during its four years of administration. But then they did it because the incentives were well assigned.

At the end of the last century the Pan-American Highway it was only done with private funds working 20 hours a day. Man hours at night are more onerous, but for the company the delay in starting to collect the toll, with the interest charged by the taxi for the investment made, was even more onerous. More recently, with Juan José Aranguren at the head of the Ministry of Energy, the Plan Renew. It basically consisted of the State’s commitment to purchase energy (the service) but the investment necessary to generate it was made by private individuals. In 2021, renewables generated 70% more electricity than nuclear plants.

Atucha II is the clear example of what not to do. The state started investing in Atucha II in 1981. With the war of the Malvinas, the consequent debt default, hyperinflation, etc. all that investment was buried until the end of the second government of Cristina Kirchner ended. That is, there was state funds buried without any benefit for 34 years! Funds that have not been applied to other priorities such as Education, Health or Safety. Another case is the Rosario-Córdob highwayit took 12 years to complete 410 kilometers of route plus some transit stations. Wheelwright took 6 years to join these two cities by train in the middle of the war with Paraguay without the state having to spend a cent when everything was done with mule, pickaxe and shovel.

The making of a tubing in the plain is a simple work because the difficulties in public works are not due to engineering but to popular resistance to the environmental impact they could cause, which is not the case. If the specifications establish what the gas transport needs are and that American or European technical and safety standards must be respected for the realization and that the concessionaire will be paid a sort of toll per cubic meter of gas transported which will be included in the bill of the millions of customers who consume natural gas, a next year we would have Vaca Muerta gas in our homes, in our companies, in our generators and we would also export it.

Each Public Work, according to its nature, Investors must be reimbursed by end users when the service is available. Without the money that passes through the state. If it is a direct toll urban highway; if it is an indirect toll interurban motorway as proposed by Guillermo Laura in his Plan 10; whether it is electricity per kWh; if it is gas per cubic meter. Whoever proposes to apply the lowest rate to end users will win the tender. It is not difficult and it is much more transparent. A price, called a rate or rate as the case may be, for a service and not those intricate spreadsheets and budgets that are made more to hide than to show. Without construction certifications. If users can use the service, the Dealer will charge and, if not, no. It’s just a state that does.

The current crisis and its worsening in the coming months will require, whether you like it or not, that the state be forced to spend on social assistance, so no public funds can be allocated for infrastructure. On the other hand, if we make every public work a business opportunity for dealers, builders, sectors that do short and long term financing and supplier industries, not only will we be able to enjoy better services but also we will create productive jobs for hundreds of thousands of needy Argentines.