After the segmentation comes the cut in public spending in the other items

Despite the adjustment and segmentation of tariffs, the government continues to have problems complying with the budget deficit target agreed for this year with the Monetary Fund.

The red foreseen in the contract is del 2.5% of gross product. But from Sergio Massa’s team they admit that today they are exceeded by 0.7 percentage points: it is expected to close the year with a deficit of 3.2%.

For private economists, the rate hike made explicit this Tuesday is “insignificant” to reduce the fiscal red this year. For this reason, they estimate that after segmentation the focus will be on management expenses, provincial transfers and retirement.

From the Mediterranean Foundation they report that if in the second half of the year the expenditure and revenues of the national public sector continued at the rate of the first, in 2022 the primary deficit would be equal to 3.2% of GDP.

The calculation they make is that with an increase in income of 74% throughout the year, “the possible effect of the announced adjustment of subsidies and tariffs, social security mobility of 73% and an 83% increase in staff spending, the rest of public spending is expected to rise by only 34% over the rest of the year, against 80% year-on-year inflation. “

In this sense, they estimate that “the voices that could be reached by this adjustment are current and capital transfers to the provinces, social plans and public investmentsMoreover”.

Ecolatina data show that primary expenditure in the first half has reached the fourth highest value in real terms of the last 30 yearseven above 2020, when the economy suffered the impact of the pandemic.

“What is worrying is not only the high level of spending, but also the moment of the year when it is evident: in the last 10 years the real level of spending in the second half was on average 10% higher than in the first half of the year. ‘year “, Ecolatina details.

more cuts

From Alphacast, economist Matías Carugati points out that “if they don’t want to touch capital expenditures (public works), nor touch social programs, they will have to take a closer look at the transfers to the provinces (which could cause problems for governors), operating expenses (mainly government employee salaries) or other current expenses.

“However, it seems to me difficult to obtain large savings from these last two items. Even with the tariff segmentation, the tax savings for this year are few and our point of view and that of other colleagues is that the fiscal target assigned to the IMF will be difficult to achieveCarugati points out.

“The second half of the year will necessarily be characterized by greater fiscal austerity. Primary expenditure should go from growing to decreasing in real terms between July and December compared to 2021 “, emphasize Ecolatina.

For Ecolatina, the reduction in spending should show an 8% decrease compared to the real average of the last 10 years. For this to happen, “the government could rest on three legs: the effect of inflation, actions to limit wage growth, and measures to reduce subsidies “.

Pensions would fit into that cut list: the pension formula shows a 0.4% year-over-year increase in the early part of the year, and Ecolatina estimates it will have an 8% year-over-year reduction in July-December.

Achieving the goal with the Fund is not the only reason to reduce spending. Eugenio Marí, chief economist of the Fundación Libertad y Progreso, explains that “the national public sector it must move rapidly towards a lower fiscal deficit to reduce inflation levels and debt growth. In this scenario, part of the reduction in spending is likely to come through fewer transfers to provinces, most of which with excess fiscal results.

Marí adds that “the Fiscal Consensus, which allows jurisdictions to raise taxes, therefore acts as a guarantee. If a province loses national transfers, it can compensate for them by raising taxes. The problem is that this would further increase the total tax burden on the economy, further suffocating the private sector and negatively impacting investment and economic growth.

AQ