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ARGENTINA | 02-10-2019 16:42

Supreme Court rules for provinces in row over tax, IVA cuts

In a blow to the Macri administration, Justices rule that national government's post-PASO measures should not be funded by co-participatory funds.

Delivering a blow to President Mauricio Macri, the Supreme Court has ruled that the national government’s cuts on income and IVA (VAT) taxes, introduced in the wake of last month’s PASO primaries, should not absorbed by provincial governments.

The ruling, delivered Tuesday, said the altenations cannot affect funds transferred from the national government to the provinces and should not be financed from federal revenue-sharing – i.e. money that comes from tax collection later shared with the provinces. The justices have therefore obliged the national government to fund its own policy.

Macri announced a raft of measures in the wake of the August 11 PASO primaries, in which he was easily defeated by Peronist rival Alberto Fernández, casting a shadow over his hopes of winning re-election. The package included tax breaks, bonus payments and the removal of IVA from a list of 14 basic food items.

Provincial governors reacted badly at the time to the announcement of the changes, which were unveiled unilaterally. They described the move as “harmful” to their regional finances and said they had not been offered any compensation by the Casa Rosada.

In the absence of answers, 15 of the 19 governors repudiating the cuts took their claim to court to stop the measures coming from their budgets, arguing that since there was no consultation from the Executive, they shouldn’t be held responsible for any decline in provincial coffers. Others later joined the action, filing suit separately.

Also on Tuesday, President Macri announced in Córdoba that his government would reduce social security contributions for small and medium-sized businesses to 22 percent from 35 percent in an effort to boost employment and improve the outlook for PyMES.


Cambiemos officials indicated their dismay at the Supreme Court’s decision yesterday, although on Wednesday, Buenos Aires Province Governor María Eugenia Vidal decided her region would join the provincial governments in their claims against the State, in the wake of the Supreme Court ruling.

Vidal’s province had not been a plaintiff in the first round of judicial claims, with complaints coming individually from Formosa, Tierra del Fuego, Río Negro, Entre Ríos, Catamarca, Chubut, La Pampa, La Rioja, Salta, San Luis, Santa Cruz, Santiago del Estero, Tucumán, Misiones, Santa Fe and San Juan.

However, officials from Governor Vidal’s administration told Perfil it would “ask to be given the same as the rest” in the wake of the ruling. Adding it would file its own claim if necessary because “it is our responsibility as provincial government."

The ruling, announced Tuesday, will see the government fully assume the costs of its post-PASO measures. The Supreme Court, ruling with one dissenting vote from Carlos Rozenkrantz, said funding gap should be covered "by the National State, without affecting the co-participation [agreement] corresponding to the provinces."

"The measures would result in a decrease of approximately 1,000 million pesos [US$16 million], which would jeopardise the normal functioning of the provincial institutions, and the basic needs of its population," the court’s ruling read.

The judges also ruled on "the unconstitutionality of the decree that provided a 0 percent drop in VAT for certain products in the food basket until December 31, 2019 inclusive."


Speaking Wednesday in San Juan, Alberto Fernández praised the ruling, saying that the court had done “what it should reasonably do in terms of justice.”

He criticised the Macri administration, saying you “cannot govern and campaign at the same time,” adding that the decision was taken in “a very unqualified way that would affect the finances of the provinces.”

"The court, with this ruling, ratified federalism. It confirms what we have been saying since the measures were adopted: the national government is entitled to take measures, but with the money from the national budget, not from the provinces," was the assessment of Tucumán Governor Juan Manzur. 

Interior Minister Rogelio Frigerio took a different view, arguing that the Supreme Court’s “imprecise” and “unclear” ruling was difficult to enforce. A tax cut “benefits Argentines,” he insisted.

Justice Minister Germán Garavano said that the move “clashed with a Supreme Court tradition of not ruling in the context of an election campaign,” adding: “We do not see the hurry for the injunction.” 
Security Minister Patricia Bullrih was blunter in her criticisms, urging the provinces to “chip in.”

“These days all the provinces, except Chubut, have a fiscal surplus but not the Nation. Almost all the provinces scurried to the Supreme Court, which reacted very quickly. We would have liked everybody to have shown more solidarity with the sectors having the worst time.

In other economic news, the government announced Wednesday it had collected 422 billion pesos (US$7.3 billion) in tax revenue this September, a rise of 42.7 percent on the same month last year. Inflation, however, reached over 50 percent in the same 12-month period.


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