Monday, June 24, 2024

ECONOMY | 06-06-2024 11:59

Milei begins to slash energy subsidies for low-income Argentines

Low-income homes will see the energy cost of their utility bills double on average in June, while middle-class families could see prices rise 155%.

Electricity bills will soar this month for most Argentine households heading into a particularly harsh winter as President Javier Milei marches on with economic shock therapy.

For the first time since Milei took office, low-income homes will see the energy cost of their utility bills double on average in June, while middle-class families could see prices rise 155 percent. While most Argentines only pay five percent of the real cost of electricity, that figure will jump to a third for low-income households and nearly half for middle-class citizens, the Energy Secretariat said in a series of press statements Wednesday.

Sharply raising utility prices stands to test just how much of Milei’s austerity Argentines are willing to endure. The libertarian president continues to enjoy approval ratings above 50 percent, far better than his predecessors. Removing subsidies has long been considered a politically costly move, however, and sparked an internal divide in the previous government, causing ministers to resign. 

Milei’s team, led by Economy Minister Luis Caputo, is working to unwind generous energy subsidies that last year cost Argentina the equivalent of 1.5 percent of its gross domestic product. The government hopes to lower that number to about 0.8 percent this year, according to a senior energy official who asked not to be named discussing sensitive government matters. 

The removal of subsidies has been riddled with stops and starts this year as the economic team balances the need to slow down inflation running at a nearly 300 percent annual pace and balance Argentina’s notoriously bloated budget. At the same time, a cold spell hit the Buenos Aires area in May, and the government says this winter could be the coldest since 1980. 

Some people’s energy bills could spike even higher after the government set a ceiling on electricity consumption to qualify for subsidies. While in May there was no limit to how much a poor household could consume while enjoying subsidies, in June their electric costs will jump to nearly the full price after they consume 350 kilowatt-hours per month — the amount the government estimates 70 percent of those households spend on a monthly basis. The roof is set at 250 kilowatt-hours per month for middle-income earners, down from 400.

Businesses and high-income earners will also see hikes in their bills this month, although less aggressive bumps because the government had already stripped significant subsidies earlier this year. 

This isn’t the first time lower income earners will see their bills multiply. Earlier this year, the government began to thaw prices for the fixed costs of delivering gas and electricity, which it regulates. Those prices will climb on a monthly basis starting in July, tied to expected future inflation, the official said. The government expects inflation to continue to slow down in the coming months.

by Manuela Tobias, Bloomberg


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