Argentina Approves Bill to Eliminate Income Taxes for Almost All Employees

World

by Gianluca Di Donfrancesco

Measure desired by the Minister of Economy Massa, candidate for the presidential elections in October. Monetary Fund worried about public spending and inflation

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Elimination of income taxes for almost all Argentine employees: the Buenos Aires Parliament has approved the bill that cancels them, a measure proposed by the Minister of Economy, Sergio Massa, a few weeks after the vote for the presidential elections, which will be held on October 22nd. Massa himself is taking part in the race for the Casa Rosada, at the helm of the current centre-left government party, which only placed third in the August primaries: a sort of anticipation of the actual vote, in which everyone participated the parties in contention.

Taxes for 1%

Massa had already launched a temporary exemption from income taxes for 99% of employees with a decree. The law which received the green light from the Senate on Thursday (after hours of debate and with 38 votes in favor and 27 against) definitively eliminates them for 800 thousand workers and pensioners. Only those who earn more than 15 times the federal minimum wage, i.e. 1.77 million pesos per month (over 5 thousand dollars), will have to continue paying taxes.

The initiative was announced on September 11 and sent to Congress in the form of a bill the same day. “For me, salary is not profit, but remuneration,” Massa said on that occasion. The measure would cost up to 0.83% of GDP in 2024, according to estimates from the Congressional Budget Office.

Electoral maneuver

Between an election rally and a tax reform, the minister-candidate tries to regain ground on his political opponents. The latest measure adds to the increases in pension allowances and public sector salaries just granted by the Government.

All this, according to economists’ estimates, will cost around 5.7 billion dollars, which will be largely financed by printing money and thus fueling inflation, in a situation that is already out of control. The consumer price index in Argentina is among the highest in the world: in August, the annual increase exceeded 124%, the highest since the hyper-inflation phase ended in 1991. On a monthly basis, the cost of living rose 12.4%.

IMF worried

In a country already (again) on the brink of default, these measures also put pressure on the aid program agreed with the International Monetary Fund. “Inflation in Argentina is very high and continues to rise, and recent policy announcements and measures add to the challenges,” IMF spokeswoman Julie Kozack said at a press briefing in Washington on Thursday. The Fund’s staff, added Kozack, “is working to better understand and evaluate the impact on public finances and the possible need for compensatory measures, to strengthen financial stability and safeguard the agreed objectives”.

The Argentine government has committed to the IMF to keep the public deficit within 1.9% of GDP this year, within the framework of thedebt refinancing agreement of 45 billion dollars, reached in 2018 and subjected to difficult periodic reviews.

The country’s economic crisis, meanwhile, is worsening and prolonging: in recent OECD estimates, Argentina is facing a 2% contraction in GDP this year, followed by a further decline of 1.2% in 2024, when a return to growth was expected.

Massa’s challengers

Massa’s opponents are the former Security Minister, Patricia Bullrich, a conservative, and the outsider Javier Milei, leading in the August primaries and in the polls. Milei criticized the spending measures launched by Massa: “He seems to have the intention of triggering hyper-inflation.” The ultra-liberal leader of the “Freedom Advances” coalition proposes to abolish the Central Bank and replace the peso with the US dollar.

If no candidate obtains a clear majority in the first round of the presidential elections, a run-off will be held in November.

Gianluca Di Donfrancesco

editor

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2023-09-30 12:23:49
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