Argentina’s 2023 budget: more taxes, more public debt and more inflation

Although Juntos por el Cambio (right) rejected Martín Guzmán’s budget last year as the opposition, this year, the party was instrumental in approving the 2023 budget presented by Economy Minister Sergio Massa.

This Wednesday morning, Juntos por el Cambio not only reached the quorum that the Frente de Todos (left) could not have reached on its own, but dozens of radical deputies voted in favor of the Kirchnerist project.

The bill was approved in the legislative chamber with 180 votes in favor, compared to 22 against and 49 abstentions.

The system designed by Massa maintains all the basic features of current economic policy: Retention, industrial protectionism, the highest taxes in the world (even increasing existing taxes and creating new ones), unsustainable public spending, and a large budget deficit.

TARGETING WITH THE IMF

The budget recognizes the fiscal path laid out since January 2021 and commits to meeting the quarterly targets agreed upon with the IMF.

In particular, the primary deficit will be reduced from the 2.5% GDP expected in December 2022 to 1.9% next December.

A small change, but enough to maintain the agreement with the IMF.

With interest costs on government debt rising from the third quarter of this year, the fiscal deficit could remain unchanged at around 4% of GDP by 2023.

No measures or remedies for the central bank-induced explosion in government debt have been announced or specified.

The objective is to adjust the growth of national tax revenues and public spending to meet the minimum conditions set in the IMF agreement.

The bulk of the adjustment will take place starting in 2024.

PUBLIC DEBT

According to the budget projections approved by the Chamber of Deputies, placing government debt in pesos with local banks will play a significant role in financing the fiscal imbalance.

The agreement with the IMF provides for the refinancing of external debt, and the inclusion of Massa in the economic team is expected to release several foreign currency loans in favor of the government.

The main focus, however, will be on domestic borrowing to replace as much monetary issuance as possible.

Congressman José Luis Espert estimates that total public debt will increase by less than US$25 billion (converted to pesos at the official exchange rate) due to the Kirchnerist budget and related fiscal imbalances.

PROJECTED INFLATION

Probably the most controversial measure of the budget is the poor estimate of the annual inflation rate projected for December 2023.

The 2023 budget projects an annual price increase of 60%, 40 percentage points lower than projected for the end of this year.

Without a stabilization plan, there are no critical macroeconomic and technical reasons to justify such an inflation rate projection.

This projection was criticized for being ridiculously optimistic and practically impossible to fulfill.

TAXES

The 2023 budget plan includes introducing an “aviation security tax” on domestic and international airline tickets.

In addition, the tax exemption for the payment of income tax by the judiciary has been abolished.

The general implementation of income tax on these items is expected to raise US$237 billion in additional revenue by 2023.

Nevertheless, the government has also considered unique and earmarked provisions at its discretion.

Wage earners in trucking will be able to deduct expenses for per diems, bonuses, and meals from their income taxes. This benefit is not always realized in other areas with similar characteristics and has been granted on a discretionary basis.

This time, all taxpayers have the opportunity to deduct up to 40% of educational expenses from their income tax.