Amid deep recession, Argentina's Macri to eliminate most income tax deductions
Argentine Economy Minister Nicolás Dujovne presented President Mauricio Macri's 2019 budget proposal to Congress today.
The proposed budget proved controversial not only for its "optimistic" assumptions regarding the nation's economy next year; but also for provisions eliminating many income tax deductions enjoyed by individual as well as business filers.
On the chopping block are exemptions for bonuses, stipends, paid travel and moving expenses and other supplemental pay, as well as some business expense deductions.
Numerous scientific, engineering, and other highly-specialized professions, as well as high-risk professions such as in the oil and mining sectors, will also lose their special exemptions - as will employees in Tierra del Fuego, whose promotional income tax rate was enacted in 1972 as part of an effort to develop the remote, far-south province.
Dujovne expects the exemption rescissions to raise 25 billion pesos ($600 million) next year - around $300 for each of some 2 million affected employees.
"The objective is to have equity in the tax code," Dujovne said in a congressional hearing. "There were too many laws modifying its application."
Nevertheless the most controversial exemption - one freeing federal judges and court staff from paying any income tax at all - was not altered. The exemption costs federal coffers $235 million annually.
The decision to retain the costly judicial exemption, critics note, is in line with Macri's policy of weaponizing Argentina's already-strained judiciary against opponents while shielding him and his administration from over 70 charges so far.
"Under Macri," María Servini de Cubría, the nation's most senior federal judge, noted, "pressure on judges has been unprecedented."
Highest unemployment in 12 years
The tax increase is part of a series of austerity measures agreed to with the IMF as part of a $50 billion bailout agreed to on June 8.
The revenue benefit of the proposed changes is limited, however, by the fact that the Argentine federal tax code exempts most of the nation's work force of 19 million. Income taxes last year brought in $17 billion, or just 14% of federal revenues (compared to 47% in the U.S.).
Macri pledged to reduce the budget deficit from 6% of GDP last year, to 1.3% in 2019. Earlier cuts have already trimmed it to 3.7% of GDP - roughly the same level Macri inherited in 2015.
Nobel laureate Joseph Stiglitz expects austerity to exacerbate a severe recession that began after the 2017 debt bubble imploded in April; GDP was down 6.7% just as of June, and unemployment has risen from 5.9% when Macri was elected three years ago to 9.6% currently - the highest in 12 years.
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IMF = Poverty. Argentines protest budget cuts and tax increases imposed by the IMF bailout agreed to in June.
The bailout, critics note, was brought about by record external deficits and capital flight caused by Macri's own deregulation.
