Tax reform, the budget and the economy 2025: What the government and the IMF see

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Tax reform, the budget and the economy 2025: What the government and the IMF see
The IMF asked Javier Millay’s government for changes in monetary and exchange policy, particularly with an eye on the 80-20 export dollar program and dollar stocks.

Beyond the situation, the executive branch has begun to propose a plan for the medium term, on the horizon, as it begins to move to a new phase in the government’s economic program, marked by the need to gain political support for its efforts in Congress, as expressed in recent negotiations with the IMF.

This is a map of the reforms included, which predicts what the initial impact of the first year of the mandate will be on sensitive economic variables and opens the door to imagine what the economy will look like in 2025. From now on, what shape will a possible new agreement between Argentina and the IMF take?

He Staff reportThe agency’s team of technical experts prepared after several weeks with a group of officials from the Ministry of Economy and the Central Bank expressed the board of directors’ strong support for the government’s economic plan. Javier MileyIt highlights the margin of overshooting fiscal and reserve accumulation targets, along with the pace at which inflation has been able to decelerate.

He also made observations about the “quality” of fiscal adjustment, suggesting that the government should increase revenue so that it is no longer supported by budget cuts, which are less viable and politically – and socially – more difficult. On the other hand, he called for changes in monetary and exchange policy, especially an eye Exporter Dollar 80-20 And this Dollar stocks.

Luis Caputo and his team met Geeta Gopinath last February at the Ministry of Economy

But beyond the more cyclical views, there was also room to examine what the coming months might look like for the government and its economic policy. According to the IMF, two milestones between now and the end of the year appear to be the most relevant in the plan shared by the executive branch.

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The first is the 2025 budget, which the Ministry of Economy has already started working on, which will be sent to Congress in advance in August and which will be officially submitted for processing in mid-September. “To achieve fiscal balance beyond 2024, the target (approx 2.5% of the primary surplus of GDP, which will require reforms in tax, pension and income distribution systems,” the IMF expects.

“The government will present to Congress a draft budget consistent with general fiscal balance for 2025, with a breakdown of policies supporting the budget plan (requiring more structural measures) and a detailed statement of fiscal risks. Credibility,” the organization announced.

The IMF called for changes in monetary and exchange rate policy, particularly with an eye on the 80-20 export dollar scheme and dollar stocks.

The 2025 budget will have some expected numbers, according to the IMF. Among them, the economy should recover by 5%, consumption by 3.6%, investment by 12%, exports by 4.5%, imports by 4.9%, inflation by 45% and expected to reach 140% by the end of 2024. . These are currently the projections shared by the agency and the government, but they could change between now and September when the final estimates close.

All this will happen anyway as a recovery or resurgence of very important numbers from this year. The IMF’s expected result from Miley’s first year using his economic plan is more regressive: a 3.5% general decline in the economy (6% with agriculture taken out of the account, which is going to be a more significant recovery compared to the previous year’s drought), an 11.3% decline in consumption, a 21.8% decline in investment. The decline, and the increase in unemployment, was 8.2% of the labor supply, which was close to the previous year.

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A month after the 2025 budget is tabled, the roadmap shows that there will be a plan (or draft) for a broader tax reform than the application of tax changes included in the fiscal package attached to the Basic Law.

“A comprehensive and revenue-neutral tax reform is being developed, in consultation with stakeholders and development partners, aimed at improving the efficiency, equity and simplicity of the tax system, while phasing out distortionary taxes, particularly the PAIS tax (which will expire at the end of 2024),” the IMF field noted. .

The IMF has called for structural reforms as a condition for maintaining fiscal balance beyond this year.

The Economic Committee also gave its opinion on what this comprehensive tax reform is aimed at. “These efforts will be complemented by reforms on the expenditure side, including improving the sustainability of the pension system, strengthening financial structures and improving the efficiency and incentives of the current intergovernmental transfer system. A roadmap for implementing these additional reforms will be developed by the end of 2024,” he said.

The reform agenda is so relevant to the IMF that the word appears more than 100 times throughout the detailed document released last Monday.

“The deep structural reforms instituted by the government are aimed at a market-oriented economy. They are designed to increase long-term investment and job creation, and not only expand Argentina’s productivity and improve external resilience, but also contribute to global energy security and climate goals. This includes energy, mining, technology, agriculture and others. will sustain and unlock Argentina’s significant potential in strategic and export-oriented sectors,” the IMF’s Argentina representative summarized in a letter to the group last week. Leonardo Madgur.

Deep structural reforms instituted by the government aimed at a market-oriented economy. They are designed to maximize long-term investment and job creation (Madcur).

Among the compliments given by the employees to the government were observations about the hidden dangers in the current plan. The organization chose to note that “external conditions may turn less favorable” but domestically “the current recession will persist and fuel social tensions.”

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He also believes that the difficulty faced by the ruling party in Congress is another element that casts doubt on the chances of a firm line-up of the project with funding.

“Further delays in obtaining congressional approval of financial and structural packages may hamper stabilization efforts, and will require strong compensatory measures to be taken under necessary executive control to ensure all program objectives. Given the fragile social and political landscape, efforts to ensure adequate burden-sharing and build consensus on reform Must continue,” they warned from Washington.

“Macroeconomic imbalances and barriers to growth are substantial and a long and difficult adjustment process still lies ahead, in which policies must be developed to build on previous achievements and re-engineer the process.” “Efforts are also being made to ensure that it does not fall disproportionately on working families,” the IMF concluded in the section.

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