Finally, at least for a majority, it is becoming clear that Argentina needs to quickly reach
fiscal balance.
Ending the public sector deficit over the next few years is a necessary condition for having a
stable macroeconomy
, based on a monetary and exchange policy that stops receiving the
negative influence of issuance and debt
to finance the public sector.
Rather than closing the Central Bank, the key is
to close the door of the Central Bank to the Treasury.
Now, ending the fiscal deficit is only part of the regime change that the country needs.
Argentina has to replace public spending with private investment
and, in that sense, in addition to the regulatory changes, many of them outlined in the DNU and the so far frustrated Bases law,
a quality fiscal adjustment is needed at all levels.
Let's start by analyzing the scheme for eliminating the national fiscal deficit.
Until now, since we cannot count on the tax chapter of the Bases Law, nor have we yet reintroduced the quasi-repealed income tax on employees,
the fiscal adjustment is based on the increase or update of taxes already sanctioned
- tax Country, fuel tax-;
in an
exaggerated liquefaction of spending
, basically on retirements, social spending on “intermediate” plans and salaries;
in the reduction of
structural, operational and capital
expenses , –
“chainsaw”-
;
the
suspension of payment commitments
- sitting on the cash register and not paying, for example in the energy sector, or other outstanding debts - and
bringing transfers to Provinces
other than the automatic ones corresponding to co-participation to practically zero.
It is likely that
the liquefaction component of the adjustment has given the maximum it can give
.
The same as the procedure of “sitting on the till” and not paying.
From here, the reduction of
transportation and energy subsidies should come into play,
and depending on the negotiation with the governors and Congress,
the new tax package
and the authorization to use the
chainsaw in public companies and trust funds.
It is true that the objective of substantially reducing the inflation tax is above the search for lowering other taxes, but it is no less true that if we want to create the conditions for private investment to be present in a generalized way and without targeted perks,
the Argentina has to replace the current tax scheme as quickly as possible with a simple and affordable system,
including the reformulation of
labor taxes,
and an AFIP with the technology and human capital trained to stop hunting in the zoo.
It is appropriate, at this point, to introduce the qualitative issue of the
Nation-Provinces relationship.
Federalism imposes the existence of “several” States.
But the people who benefit or suffer from the State are not national or provincial.
Citizens are not national or provincial.
Tax payers have only one pocket.
The State has the responsibility of providing public goods.
Since the reform of the 1990s, this provision of public goods is asymmetrically distributed.
The National State has the obligation to provide
national defense
, some aspects of
security and justice
,
a currency
that meets the minimum conditions to be so, and the framework of integration with the world, to mention the main ones.
The provincial States, in turn, assume responsibility for the public goods closest to the population,
health services, primary and secondary education
, and security and justice, within their jurisdictional areas.
This “distribution” is based on the logic of the division of labor between what is best to centralize in a national State, and what is best to decentralize, bringing the demander of basic services closer to the provider.
In other words, bring the people who need those services closer to the “neighbor” who is in charge of providing them efficiently.
Unfortunately, the results, in general, of this division of labor have been very negative.
We have a failed State at the national level, and we have provincial and municipal states that have systematically deteriorated and not precisely due to lack of resources, but due to
poor management
- always with exceptions - the quality of education, health care, security and justice.
We are, then, facing a
failure in the provision of public goods both for the Nation and the provinces.
The national reasons for this failure are already on the table and there is no need to reiterate here, neither the diagnosis nor the remedy.
But the diagnosis and solution to
provincial failures is less discussed.
Indeed, the key to the decentralization of basic services centers on the idea that “consumers” who receive a terrible service punish the “suppliers” with their vote.
However, we have seen in many provinces the permanence in power of the same party, and even of the same individual, who,
far from being punished for the poor quality of his government, is rewarded
with re-election.
It is true that in the last elections some fiefdoms that seemed impregnable have fallen, but the system that can make them return remains, as has already happened on other occasions.
Why the voter does not punish poor provincial services
It is likely that one of the reasons, everything is multi-causal, the former President would say, is that
the current governor has become a provider of a private good that is employment
.
Indeed, in many provinces, the State is the main employer.
It is very difficult, in that environment, to punish whoever employs you and pays you
, given that there is no demand for alternative private employment.
Without punishment, and as long as he can continue offering salaries and subsidies,
the governor has no incentive to improve
the quality of the public goods he has to offer, nor to encourage private investment that would make the voter independent.
Without quality public goods, said private investment does not find employable human capital, so those who do not have access to public employment emigrate to other regions of the country, with better prospects for demand for their scarce capital, even if it is in informal jobs, than in These years were “complemented” with social plans and associated “businesses” (always with honorable exceptions).
President Milei, since “there is no money” has put on the table the need to adjust the public sector in a broad sense.
But the Nation-Provinces relationship, in a change of regime, requires not only a quantitative discussion, but also
a qualitative discussion
, how to generate
political and economic
incentives ,
so that both the National State and the provincial ones are efficient suppliers of goods. publics
that people need.
I understand that today the priority is the macro and ending the inflation tax, but given that the Nation and the Provinces are sitting at the same table again, it would be good to implement
transfers conditional on a measurable improvement in the quality of public goods
that the inhabitants of each region receive.
Incidentally, an illustrative example is that of the Province of Buenos Aires which, given the reduction in national transfers it receives, decided to “adjust” by cutting extended hours in some schools.
That is, deteriorating educational quality.
It would be good to approach
an agreement that goes beyond a “tax bid.”
In that sense, I always remember that phrase from the brilliant Jeffrey Archer: “The only difference between a lord and a pirate is with whom he shares the loot.”
* Enrique Szewach is an economist. He was director of the Central Bank (2017-2019) and vice president of Banco Nación (2016-2017).