The surprisingly smooth Senate passage of the 2019 Budget clears one of the main clouds on the horizon ahead of the upcoming G20 Leaders Summit at the end of the month, although there can be no resting on laurels – not so much because the amendments now send the budget back to the Lower House for final approval next week as because of the security jitters aggravated by the midweek bomb attacks. These anxieties surge to the fore not only because of the genuine importance of this unprecedented concentration of top world leaders but also because the government is almost grateful for any problem displacing a stricken economy from the agenda, no matter how serious.
Support for “the law of laws” was surprisingly solid with the 45-24 vote in favour – a minority government belied its strength by thus coming close to a two-thirds majority and almost doubling the numbers of its own 25-member caucus (especially considering that the Santa Cruz Radical Eduardo Costa shunned the proceedings). Yet the backing of most Peronist governors is less surprising than it might appear. These governors had everything to gain from passage of the budget – and not just ensuring continuation of their cut from federal revenue-sharing which forms the lion’s share of their own budgets. Quite apart from these core funds, the Peronist provinces were able to augment their haul by selling the votes of their senators to a minority government – just the last-minute concessions alone netted some 67 billion pesos.
Political speculation added further motives to these fiscal gains. If the Mauricio Macri presidency wishes to dig its own grave with this austerity zero-deficit budget for an election year, why stand in its way, these governors might well reason (a logic doubtless reinforced by Economy Minister Nicolás Dujovne’s curious statement that no government has ever embarked on cuts of this magnitude without falling)? For one reason or another, support for the budget was forthcoming from 16 of Argentina’s 23 provincial governments (plus, of course, this capital’s City Hall).
Yet this political triumph was not only shrouded by the anarchist attacks on the day Senate debate began (amateurish enough but London has already warned of a more professional terrorism, together with talk of Hezbollah) but also by the INDEC national statistics bureau’s announcement shortly after Thursday morning’s passage of a 5.4-percent inflation figure for October – which would seem to make nonsense of the 2019 Budget forecast of 23 percent for all of next year. The government argues that this figure reflects the major devaluations of the recent past rather than future trends, committed to bringing inflation down sharply via a frozen money supply and sky-high interest rates, but Argentine budgets have an almost unbroken record of being written in sand.
But the inflation and the devaluation underlying it also provide fiscal elbowroom at the expense of the rest of the economy. With inflation running at an annual 40-plus percent it is very easy to create extra billions for the provinces by the simple expedient of neglecting or delaying the updating of tax floors – while nominal revenues thus surge, devaluation is notoriously effective in taming the spending side (not least via the battered purchasingpower of public-sector salaries). As Dujovne has admitted, the tax burden has risen for the first time since 2015 but this does not represent the full weight of the state. And if the opposition might like to take Dujovne at his word of austerity being political suicide, there are also electoral dividends for the government from the deepened Peronist rifts arising from this budget.
Yet for the government the bottom line will doubtless remain showcasing governability and a zero deficit for their top-level G20 guests.
Comments