Wednesday, June 19, 2024

ECONOMY | 18-04-2022 22:21

Argentina's government to tax Ukraine war windfall profits, redistribute funds

Government announces a new bonus for low-income workers and the retired, saying it will fund payments with new taxes on "unexpected" economic gains resulting from Russia's invasion of Ukraine.

Argentina's government on Monday announced a new bonus for low-income workers and the retired, funded by a tax on "unexpected" profits resulting from the rise in international commodity prices following Russia's invasion of Ukraine.

Payments to the country's poorest citizens would help them cope with rising inflation, Economy Minister Martín Guzmán said on Monday, declaring that the windfall tax would be turned into a bonus for those who need it most.

The minister said that unregistered workers and some self-employed would receive up to 18,000 pesos split into two payments and that retirees will receive 12,000 pesos in a one-off sum.

"We are looking to build a mechanism to ensure that the shock of the war does not have a regressive effect on our society, an unequal impact," said Guzmán, as he delivered a speech alongside President Alberto Fernández at the Casa Rosada.

"In the coming weeks we are going to convene the productive forces to work on the construction of this mechanism to capture the unexpected income," he added.

The official gave no indication of how much money could be raised by the government's proposals.


'Very small fraction'

Companies with annual net taxable profits of more than one billion pesos (close to US$8.5 million) would contribute to the fund, a group which Guzmán said represents "a very small fraction of the country's business network."

The minister said that in 2021 only 3.2 percent of firms in Argentina had that level of profits.

The economic sectors which have benefited the most from the Ukraine war are producers and exporters of cereals and grain, such as wheat and maize.

Another condition for contributing to the fund is that companies register "a significant increase in profits" in 2022, said Guzmán.

In addition, it will be established that if their windfall profits are channelled into productive investment, a firm's contribution could be lower.

"The aim is to capture this income in order to be able to carry out the role of the state in tackling problems and achieving greater social inclusion," Guzmán explained.

The government did not provide financial details or estimates about the fund. The proposal would also need approval from Congress.


Opposition rejection

The main opposition coalition, Juntos por el Cambio, came out strongly against the plans.

PRO caucus leader in the lower house, deputy Cristian Ritondo, quickly declared that “Argentina cannot bear more taxes.”

"President: stopgaps are not enough, we must change course! The state must drastically reduce its unproductive expenses, encourage investment instead of punishing it and reduce taxes instead of increasing them,” added PRO party leader Patricia Bullrich.

Lawmaker Emilio Monzó said "the government's only plan in the face of the crisis is the creation and permanent increase of taxes on productive sectors, when what is needed is a reform of the tax system."

For the Radicals, lawmaker Alfredo Cornejo, said the government “cannot come up with a productive idea or serious plan.”


Inflation pain

President Fernández's government is facing high inflation, which totalled 16.1 percent in the first quarter alone. Price hikes are wreaking havoc for Argentines, overshadowing the impact of economic growth and improved employment data.

Guzmán attributed the new spike in inflation, which reached 50.9 percent in 2021, to "the unprecedented shock of the pandemic and now the war," which he said had particularly affected food and fuel prices.

The minister said that the one-time sum of 18,000 pesos (US$152) would be for informal and unregistered workers, some self-employed and domestic staff (Categories A and B), while the 12,000-peso (US$101) payment would reach retirees.

For formal workers, the government is promoting wage talks between companies and trade unions to prevent the loss of purchasing-power, he said.

"The impact of inflation" should not be felt "in the pockets of the most vulnerable sectors of the popular economy," said Fernández, who said the payments would help to alleviate the pain of price increases.

"We must continue to improve income redistribution," he added, confirming his commitment to "progressive measures."


IMF commitments

Guzmán assured reporters that the measures were in line with existing commitments made by Argentina to the International Monetary Fund (IMF). The government recently secured a new financing programme to restructure its US$44.5-billion debt with the multilateral lender.

In the deal, Argentina has committed to gradually lowering its fiscal deficit from three percent in 2021 to 2.5 percent in 2022, 1.9 percent in 2023 and 0.9 percent in 2024.

"The fiscal, monetary and international reserves targets have been met. Policies are in line with what was planned. The primary fiscal deficit was 0.25 percent in the first quarter," said Guzmán.

In a nod to the IMF commitments, Fernández said that the measures were a representation of the ruling coalition's "logic of continuing to improve income distribution, while respecting the fiscal targets we have set ourselves."

He insisted that Argentina "needs those who have gained unexpectedly from the war to collaborate towards contributing to equality."



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