Congress set to debate government's 'wealth tax' bill

Congress will open debate on the government’s proposed ‘wealth tax’ this week, as President Alberto Fernández moves to introduce a one-time capital levy on Argentina’s wealthiest citizens.

The ruling coalition hopes the bill, which arrives with the coronavirus pandemic at its peak in Argentina, will boost government revenue at a time of economic turmoil. It was sent to Congress late Friday.

The so-called “solidarity tax,” first floated in April by Frente de Todos deputies Máximo Kirchner and Carlos Heller, would apply to approximately 12,000 Argentines, according to a statement from the coalition’s press office in the lower house Chamber of Deputies.

It would start at two percent those who have a declared wealth of more than 200 million pesos (around US$2.7 million) at the end of 2019, before scaling up to as much as 5.25 percent for ultra-wealthy citizens holding their fortune in assets outside the country, according to the Peronist coalition.

Frente de Todos said the levy would only affect individuals and not companies, and that the funds brought in would “finance the recovery of the economy." Officials said 20 percent of the proceeds are earmarked to combat the coronavirus pandemic while the rest will be reserved for wage assistance, scholarships and shantytown subsidies.

"The fundamental idea is to bring balance to a society that became imbalanced over the last four years” [of the Mauricio Mari administration],” said Kirchner, the president of the coalition’s caucus in the Chamber of Deputies.

“It will be the platform so we can discuss tax reform that Argentine society clearly needs,” added the 42-year-old, the son of former presidents Néstor Kirchner and Cristina Fernández de Kirchner.

The Economy Ministry reportedly delayed submission by initially expressing doubts while business chambers have continually rejected the idea as “highly negative for investors.

On Monday, Congress ratified Decree 690/2020 from three days previously freezing mobile television, Internet and cable television charges for the rest of the year and declaring telecommunications a public service. The government has already frozen prices on over 2,000 other consumer goods for months.

President Fernández needs to boost revenue to close a growing fiscal gap caused by a plunge in tax collection, due to his government’s strict lockdown to tackle the coronavirus pandemic. Without access to credit, the government has relied on printing money to finance stimulus measures to fight the pandemic, which is likely to fuel inflation sharply.

Coalition leaders estimate the bill would rake in 300 billion pesos in tax revenue that will be repositioned for small and medium-size businesses, medical equipment needed to attend Covid-19 and public works in low-income neighbourhoods.

The proposal comes as Argentina awaits the results of its Friday deadline for private creditors to accept the country’s offer to restructure US$65 billion in bonds, which many creditors have already agreed to in principle. The final results of the debt swap are expected as early as Monday afternoon.

The levy is also likely to be part of Argentina’s negotiations with the International Monetary Fund for a new programme that will replace a failed US$57-billion bailout given to the country in 2018. Economy Minister Martin Guzman sent a formal letter to the IMF this week requesting to begin negotiations.

Argentina has been in recession since 2018 and its economy will suffer even more this year from the effect of the Covid-19 pandemic, with a contraction of 9.9 percent according to the most recent IMF forecast. Private estimates put the contraction even higher. Poverty is close to 40 percent and unemployment is over 10 percent.

To mitigate the pandemic’s impact on businesses and low-income citizens, the government launched an ambitious plan of economic aid and subsidies. Argentina’s primary fiscal deficit reached 3.3 percent of GDP in the first half of this year.