Bucking austerity, Argentine Congress passes $1.8 billion social spending hike and $3 bn. tax cut
Following a month of heated debate and negotiations, Argentina's Congress has passed a fiscal stimulus package of two major spending bills to be included in the 2017 Budget: an increase in social benefits of $1.8 billion over the next three years; and a 23% adjustment in income tax exemptions projected to cost $3 billion annually.
The bills will now be submitted to President Mauricio Macri, who had initially opposed both proposals. Massive protests and pressure from a reunited CGT labor federation forced Macri to reconsider, however, as did the most severe recession in Argentina since 2002.
Macri's enactment - mostly by decree - of an austerity package endorsed by the IMF has led to a decline in GDP of 3.8% as of the third quarter, 8.5% lower retail sales as of November, and to inflation rates that have jumped from 24% to 45% (the highest in 25 years). Recession has also pushed already high budget deficits up by two-thirds in the first ten months of 2016.
These trends, evident early on, already prompted Macri to sign a $2 billion social spending increase in April.
Social Emergency Law
The first bill - known as the Social Emergency Law - was passed by the Senate on December 14 with 49 out of 72 votes, with all 23 opposing Senators (mostly members of Macri's right-wing 'Let's Change' alliance) abstaining rather than vote against the popular legislation. The Lower House had passed the bill on December 6 with even greater majorities: 228 out of 257, with just one negative vote (from Macri's caucus).
The centerpiece of this bill is a 15% increase to Universal Childhood Entitlements (AUH) beyond already budgeted figures, as well as a 1,000-peso ($60) Christmas bonus per enrolled child.
The AUH, enacted in 2009 by former President Cristina Fernández de Kirchner, benefits nearly 4 million children in 2.2 million families with payments of 1,100 pesos ($70) a month currently. The program, whose $3 billion annual cost is financed by the ANSES social security agency, has been widely credited with nearly eliminating childhood malnutrition as well as increasing school enrollment and immunization rates.
The bill also stipulated the creation of 1 million jobs through a boost in public financing for worker co-ops and micro-enterprises. A Popular Economy Council and a National Registry (RENATREP) will be established to monitor these programs as well as its progress.
An estimated 3 million wage earners would also qualify for assistance. This number would be about evenly divided between the roughly 1.5 million (out of 4.5 million) self-employed believed to be in poverty, as well as another 1.5 million (out of 4 million) unregistered employees earning less than the current minimum wage of approximately $2.40 an hour.
A publicly-financed wage supplement would be made available to cover any gaps in pay below this figure.
Income Tax reform
Passage of the Social Emergency Law was part of a broader congressional stimulus initiative that also included an Income Tax Reform Law, passed overwhelmingly by the Lower House today. The bill, passed with 166 yeas and just 5 nays, follows passage in the Senate yesterday by a similarly lopsided 56 yeas and 2 nays.
Whereas the first bill was designed to mitigate worsening economic conditions among the poor, the Income Tax Reform Law was designed to benefit middle and upper-middle income taxpayers primarily by raising personal and family exemptions.
The second bill would raise these exemptions by around 23% - to 28,000 pesos ($1,730) a month for single filers with no dependents, and to 37,000 pesos ($2,280) a month for married files with two children. Doing so would largely reverse the back-door tax increase decreed by President Macri a year ago, when exemptions were ostensibly raised - but with a methodology change that added hundreds of thousands of formerly exempt taxpayers by way of bracket creep.
Accordingly, this would cut the number of affected taxpayers from 2.2 million currently - and a projected 2.7 million in 2017 - to an estimated 1.4 million (out of 12 million registered wage earners in Argentina). New exemptions for rents paid and for overtime and holiday earnings were also incorporated.
The cost of raising income tax exemptions and deductions - estimated at $3 billion a year - would be partly mitigated by tax increases on financial transactions (around $600 million in added revenue), gambling ($450 million), and business income ($200 million) on 1.2 million employers.
Money does not buy happiness
The Macri administration, who had made growing budget deficits a central campaign issue last year and had pledged to the IMF and international investors that it would be reduced, initially balked at the price tag for both bills.
Administration surrogates repeatedly referred to both bills as "irresponsible," "shameful," and "designed to be vetoed." Macri himself rationalized what was an increasingly unpopular stance by noting that "money does not buy happiness."
Massive protests in cities nationwide, however, as well as polls showing strong support for both bills and waning support for Macri's coalition ahead of mid-term elections this October, prompted the administration to accept a round of negotiations called for by the CGT (Argentina's largest labor federation) and by leading social activist groups.
The bills' authors, most of whom belonged to the populist Front for Victory (FpV) led until last year by former President Cristina Kirchner, credited the Macri cabinet officials negotiating on behalf of the administration - Social Policy Minister Carolina Stanley on the Social Emergency Law, and Interior Minister Rogelio Frigerio in the case of the tax cuts - for their constructive role in the talks.
"The administration," said FpV Senate caucus leader Miguel Ángel Pichetto, "was committed to dialogue."
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