President Javier Milei has a “Plan B.” If Congress does not approve his fiscal reforms, the government will pursue a more aggressive subsidy cut than initially proposed.
The primary surplus target of 2% for this year is non-negotiable, government sources say. Congress must decide on increased export duties, the elimination of pension mobility, capital amnesty, pension moratorium, and income tax, all of which add up to 1.8% of GDP.
To pass these measures, the government will need to navigate disagreements with allies, while business leaders may request modifications.
Economy Minister Luis Caputo aims to solidify the fiscal program as an anchor of the government’s economic plan. For this, he outlined a roadmap that, in agreement with the International Monetary Fund, envisions an ambitious 2% primary surplus for 2024. Whether this is achieved, based on spending and revenue projections, depends primarily on issues to be discussed in Congress.
Caputo stated last week that the government would comply with a zero deficit, even if Congress does not approve the Omnibus bill. He hinted, without offering specifics, that “the measures will be tougher” if the bill is rejected. However, according to official sources, President Milei already has a Plan B: to proceed with faster, more drastic subsidy cuts.
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“In the unfortunate event that parliament rejects our reforms, there will be zero gradualism as far as tariffs are concerned,” a government source said. Weeks ago, Caputo had indicated that the goal this year was to prune one third of that budget item, which represents more than 2% of GDP.
The Economy Ministry expects the higher export duties included in the Omnibus bill to increase the state’s income by 0.5% of GDP, according to an estimate it posted on X. The package also includes a pension moratorium and a capital amnesty that would mean an extra 0.5%. Between these two items, one percentage point of GDP depends on congressional approval.
In terms of spending, removing pension mobility could save the government the equivalent of 0.4% of GDP. Overturning September’s income tax cut would add a similar amount. On this last point, there is still no initiative sent to Congress, but it appears in the forecasts developed by the Treasury.
Between spending cuts and increased income, 1.8% of GDP depends on legislative approval — virtually all the projected primary surplus for this year and, more importantly from the government’s perspective, the opportunity to achieve financial balance.
The Milei administration won’t have it easy in Congress. Lawmakers from the opposition Unión por la Patria (UxP) bloc plan to reject its initiatives outright. Even allies of the ruling La Libertad Avanza (LLA) coalition have their reservations on issues such as pensions, and are calling for a law to ensure pensions will not lose against inflation. The Casa Rosada flatly dismisses this.
The Unión Cívica Radical (UCR) and some sectors of PRO are increasingly opposed to raising export duties in the way that is currently proposed. The UCR has divided the initiatives according to a traffic light scheme, and export duties appear in red. There are internal rumblings in PRO, the party founded by Mauricio Macri, and all signs point to a divided vote.
Meanwhile, the entrepreneurs are on the move. The wine sector was one of the first to raise its voice against the increase in export duties, meetings with governors to instruct their legislators to stop that chapter. The agricultural sector manages its criticisms through the Secretary of Agriculture, and the Argentine Industrial Union began to thaw its demands last Thursday with a press release questioning the new export duty scheme.
Analysis: Milei mulls faster subsidy removal if omnibus law fails
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16.01.2024
President Javier Milei has a “Plan B.” If Congress does not approve his fiscal reforms, the government will pursue a more aggressive subsidy cut than initially proposed.
The primary surplus target of 2% for this year is non-negotiable, government sources say. Congress must decide on increased export duties, the elimination of pension mobility, capital amnesty, pension moratorium, and income tax, all of which add up to 1.8% of GDP.
To pass these measures, the government will need to navigate disagreements with allies, while business leaders may request modifications.
Economy Minister Luis Caputo aims to solidify the fiscal program as an anchor of the government’s economic plan. For this, he outlined a roadmap that, in agreement with the International Monetary Fund, envisions an ambitious 2% primary surplus for 2024. Whether this is achieved, based on spending and revenue projections, depends primarily on issues to be discussed in........
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