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ECONOMY | 29-09-2023 09:27

Argentina to all but end income tax as election spending spurs inflation

Sergio Massa's push to eliminate income taxes for almost all formal workers wins approval in the upper house.

Argentina’s Congress has approved a bill that will eliminate income taxes for almost all formal workers, a measure poised to put more pressure on a ballooning fiscal deficit that’s underpinning 124 percent inflation before October’s presidential elections. 

By a 38-27 vote, the Senate approved the legislation late Thursday advocated by Economy Minister and presidential candidate Sergio Massa, whose coalition placed third in the August primary vote. President Alberto Fernández is expected to sign it into law. Argentines cast their ballots October 22. 

While Massa had already temporarily exempted 99 percent of salaried, payroll workers from income taxes by decree, the legislation permanently eliminates income taxes. Only workers who earn the equivalent of 15 federal minimum wages — 1.77 million pesos per month (US$5,057) — will continue paying income taxes, a fraction of the workforce. To be sure, a new government takes office December 10., and could reverse the measure. 

As he cuts taxes, Massa is attempting to recoup lost electoral ground by spending heavily. He’s giving millions of informal workers handouts, increasing social security pay-cheques and upping salaries for public sector employees. All that, economists estimate, will cost two trillion pesos (US$5.7 billion) that will be largely financed with Central Bank money printing that will fuel future inflation.

The lost revenue via income taxes, combined with increased fiscal spending, heightens risks to Argentina’s US$44-billion programme with the International Monetary Fund after Massa had committed to austerity in August. 

“The recently adopted policy measures and announcements add to Argentina’s challenges,” IMF chief spokesperson Julie Kozack said at a press conference in Washington Thursday. “The economic situation remains very challenging and complex.” 

by Patrick Gillespie, Bloomberg

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