Caputo’s First Announcements: Changes to Deferrals and Tax Cuts, Without “Chainsaw” or Privatization

The first announcements from the Ministry of Economy, scheduled after markets close this afternoon, will delve into a certain amount of detail on the economic message that Luis Caputo, President Javier Mili, already expressed when he took office. At the fiscal level, its content will include general policies that combine both revenue consolidation and spending cuts to cash out public accounts by 2024, as promised by the new government.

Once he was confirmed, Caputo assured bankers that the lilac market would be settled without any disruptions, warning staff in the minister’s first message that “everything will be fair and no one will expect barbarism.” .” Don’t expect a technical report from Caputo, but rather “a simple presentation, easily accessible to the public.”

In this way, it is better to start with what is not going to happen: it is ensured that these measures do not presage privatization or closure of companies, massive layoffs in the public sector or cuts in social spending. Priority.” Anything announced about Aerolíneas Argentinas or YPF, public media, will not take place in this first set of results.

So, in this first step, “No Chainsaw But a better job of cleaning up public administration” is to identify duplication of activities in various institutions, transfers to public institutions without clear goals, trusts and other unnecessary expenses.

As a guiding principle, the government talks about a “single treasury account”, which allows better control of the income and expenditure of each department that is part of the public administration, including some decentralized institutions representing savings banks. In the previous government, the instrument was promoted during the very short administration of Silvina Patakis, head of the Treasury Palace.

The entire package will be launched through the resolutions of the Ministry of Economy and the Central Bank with their already appointed and functioning officers. Nothing announced today should go through Congress: The reforms are reserved for the “universal bus law” being prepared by the Millay government.

At the tax level, there has been talk of “leveling the playing field” on export withholding, with changes where sectors that currently pay more reduce their contribution and others that don’t pay begin to do so. The Economic Committee believes that the compensation in these cases will come from the additional income generated by the new exchange rate, which in this first phase will not be less than 650 or 700 pesos.

For importers, this new exchange rate will be taxed along with the PAIS tax, with the rate ranging from 20 to 30%. Caputo’s team clarifies that there will be exceptions to the tax, which will focus on the import of consumer goods and that there will be exceptions for the purchase of inputs abroad, especially if they are part of the export production chain.

In this way, the application of PAIS tax will be a major step in resuming the path of SIRA, which created many complaints among traders during the previous administration.

Those participating in the creation of the Caputo project promise that it is possible to achieve financial balance by the end of 2024, as Miley promised. The truth is, it’s clear that hyperinflation is far more corrective than the new president’s favorite mantra of “no money.” That is why it seems likely that the start of the program will be with seemingly minor changes that do not require the parliamentary support that the new government currently seems to lack.

Likewise, this fiscal starting point should be tied to Miley and Caputo’s decision to proceed with the 2023 “legislative” extension of 2024 rather than scramble to craft their own budget legislation. The weight of inflation, on the other hand, makes all forecasts ambiguous. With the continuation of the 2023 budget, the chief of staff led by Nicolas Bosse will be responsible for expanding and resigning, in most cases, outdated items.