A new year has now begun (happy 2017, everybody) but nothing especially new about the main themes in its first week — the economy and crime.
Nor are they topical due to anything special happening in the last week. The dominance of economic issues (never far from the foreground in Argentina) is the natural consequence of the buzz surrounding the new ministers Nicolás Dujovne (Treasury) and Luis Caputo (Finance) replacing Alfonso Prat-Gay (bounced on December 19) — much of that buzz created by the loquacious Dujovne who gave something like half a dozen major interviews in his first half-week. And the return of crime (again, never far from the public mind) to the front-burner stems from another event that same December 19 — the storming of a Flores police precinct by irate citizens infuriated by the slaying of a local teen by a juvenile motorcycle thief with the same name (Brian) and almost the same age.
Normally the week between Christmas and New Year is the deadest of the year in news terms with everybody absorbed by the festivities but it was all too eventful this time around — not only the aforementioned December 19 news items but ex-president Cristina Fernández de Kirchner suddenly facing trial on a couple of a fronts (no more about that in this column because it is already the subject of an editorial on page 16 and because nothing further will happen this month owing to the court holiday). Even the one debate to originate this week — over the extra 25 billion pesos for Buenos Aires province Governor María Eugenia Vidal — did not arise from anything actually happening but from anticipation of a decree which had yet to be issued when this column was written. This week is indisputably the slowest of 2017 because it is the only one so far but it also stands a pretty good chance of remaining so at the other end of the year.
STARTING WORK WITH LABOUR
One slick way of describing Dujovne’s plan would be to say that he is trying to head off problems with Donald via the economics of Ronald — i.e. faced with the prospect of higher international interest rates from Donald Trump’s determination to keep jobs and hence capital in the United States, the new minister proposes to make Argentina more competitive via the tax cuts made famous by Reaganomics (known within the profession as supply-side theory). The cornerstone of supply-side economics is that tax relief would generate so much growth that revenue would actually increase although that was not Ronald Reagan’s experience (“I never worry about the deficit, it’s big enough to look after itself,” he joshed). Dujovne does worry about the deficit but he does not have much margin to cut public spending in an electoral year — his strategy is thus gunning for growth to convert constant sums of government outlay into a lower percentage of the economy, a logic very similar to the supply-side approach to revenue.
Dujovne ran into early controversy by making “ridiculous” payroll surcharges amounting to some 40 percent of wages the spearhead of his tax cut proposals. Héctor Daer (a deputy for Sergio Massa’s Renewal Front and one of the troika heading up the CGT labour umbrella — one of the “three wise men” we might say, given it’s Epiphany today, or would it more accurate to say “wise guys”?) argued that employer social security contributions are a “deferred wage” not a tax while their removal would drain pension and welfare system funding. Nor does the CGT look like taking a passive attitude towards wages as such in this year’s collective bargaining — they share the scepticism of most economists as to whether inflation can be held below 20 percent with the steep increases in the pipeline for utilities, fuel, highway tolls and healthcare among other items.
At the same time Dujovne risked early unpopularity with President Mauricio Macri’s middle-class constituency by announcing that the five percent IVA value-added tax refunds on debit card purchases (maintained since 2001) would be discontinued this year. Apart from trimming the deficit, this move obeys a similar logic to the government’s uphill battle to end subsidized gas and electricity bills — namely that it benefits the middle class far more than the poor. Although Dujovne placed his face behind the announcement, the Central Bank may well have played a leading role here. An early assertion of economic leadership if Dujovne insists on taking the rap here — no interest in being Santa Claus despite having the right first name.
THE BRIGHT SIDE
Yet in seeking to square the circle with fiscal entrenchment in an election year, Dujovne also has a couple of solid grounds for optimism.
One is the extraordinary success of the tax whitewash, which seems to have wiped out all the 2016 fiscal excesses.....