Christmas cannot come soon enough for many people, especially among the very young, but President Mauricio Macri is probably looking more forward to some other days in the remains of this year — such as the respective closures of the legislative and judicial branches after the self-inflicted muddle over the income tax floor and the increasingly international legal tangle over the Jujuy social indigenous leader Milagro Sala (not to mention his predecessor Cristina Fernández de Kirchner’s quest for judicial martyrdom moving a bit closer to being indulged). If Benjamin Franklin said that there were only two things certain in life: death and taxes, Macri would probably modify his current definition of inevitability to taxes and miracles — with the latter referring, of course, to Milagro Sala rather than any such miracles as the “second half” suddenly exploding into prosperity in its last fortnight.
The parliamentary debate over the income tax floor has become more politicised by the day — everything to do with one-upmanship with almost no interest in defining a fiscally viable and socially just income tax floor, never mind the more general modernisation which the tax system needs so badly. Both sides keep painting themselves into corners on purely political grounds, leading to various tactical twists and turns.
The original sin here was Macri’s incomprehensibly rash decision to submit a bill updating the income tax floor by less than his own 2017 inflation forecast to extraordinary sessions in a hostile Congress, instead of just allowing the normal parliamentary year to end in November —no doubt betting on Peronist fragmentation and provincial fiscal needs to sway the balance. But the temptation to defeat the government was too strong for the Peronists, whose three main strands overcame their rivalries to push the irresponsibly generous tax bill of Sergio Massa’s Renewal Front through the Lower House.
But then it was the turn of the opposition to miscalculate. In an outburst of political greed most inland Peronist governors thought they could have their cake and eat it too — confirm Macri’s defeat by whipping through Massa’s bill while at the same time remaining safe from any adverse fiscal impact (three billion pesos or so for most provinces, nearly 10 billion for Buenos Aires province) due to the certainty of Macri’s veto. Yet if Macri’s gamble on Peronist division had badly misfired, he still had provincial revenue needs in reserve — the governors were informed early in the week that there would be no veto (purely a political gambit with zero fiscal responsibility).
Since swift passage of Massa’s bill was no longer risk-free, too many Victory Front senators had second thoughts for further progress to be possible. Playing for time permitted various options, of which amending Massa’s bill and thus automatically sending it back to the Lower House was probably the most obvious. Quite apart from the hole dug into federal revenue-sharing, all three compensatory taxes proposed by Massa (levies on financial profits and gaming, as well as the return of export duties on mining) had their critics — thus senators from mining provinces were obviously unhappy with the export duties while others thought that slapping a tax on fixed-term deposits facing falling interest rates might do more to discourage saving than punish speculation. But instead of amending the bill, the senators decided to propose “dialogue” with other sectors (starting with the governors and trade unions) — a call speedily echoed by the government.
The tax debate could indeed be usefully broadened to attempt the modernisation of a tax system which is both quantitatively and qualitatively at fault (both too heavy and too many socially unfair indirect levies) but “dialogue” quickly turned into a tactical stopgap as both sides started to smell blood and fancy their chances of a quick win. Encouraged by the successful obstruction in the Senate, Macri felt sufficient fiscal empathy from the governors to revive hopes that Finance Minister Alfonso Prat-Gay’s original bill might have the success in the Upper House it had been so crushingly denied in the Lower — strict limits were thus set on “dialogue” (meeting the sectors in isolation and on the government’s terms with minimal concessions envisaged) with a view to defining income taxation next Wednesday. Irked by this scant interest in negotiations and pressured by his ultra-Kirchnerite colleagues, Senate Majority Leader Miguel Angel Pichetto (Victory Front-Río Negro) picked up the gauntlet and made Wednesday his D-day too.....