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ECONOMY | 18-12-2019 01:00

Government announces new tax hikes, sends 'emergency bill' to Congress

Economy Minister Martín Guzmán confirms trailed measures designed to boost growth, including higher export levies, 30% tax on foreign currency purchases, freeze on public utility prices, and bonus for pensioners

President Alberto Fernández's government unveiled  a series of pre-trailed measures designed to boost growth Tuesday, beginning with a 30 percent tax on foreign currency purchases and a six-month freeze on public utility prices.

The new government is proposing higher export levies and a tax on the purchase of foreign currency, as part of a plan to boost social spending and fix its debt problem.

Fernández, who took office last week, had already announced increases in taxes on agricultural exports over the weekend.

The measures announced by Economy Minister Martín Guzmán on Tuesday is aimed at boosting spending with a focus on social programmes in the hope of reviving domestic consumption and restricting dollar outflows.

"In 2017, a reform was enacted for an economy that was going to grow and instead went into freefall," Guzmán told a press conference in Buenos Aires.

"If we want to solve the crisis we have to change that. If not, our fiscal problems are going to get worse," he said. "We cannot allow the deficit to grow."

“This bill is the first step to resolving Argentina’s economic crisis,” he told reporters in Buenos Aires.

Fernández on Tuesday sent a so-called "emergency bill" to Congress, where his Frente de Todos coalition will face its first test. He seeks to obtain sweeping powers to renegotiate debt, raise salaries and taxes, while controlling prices of politically-sensitive items such as utilities and medication. In addition, the bill would raise export tariffs on the agricultural sector.

It follows recent government decrees for temporarily doubling severance pay and lowering medication prices.

Balance

The bill is Fernández’s first attempt to strike a balance between his voters’ demands for higher social spending and the country’s dire financial situation.

Guzmán, 37, has said the government can’t freely print money to cover costs, nor can it continue the previous government’s austerity cuts, which he argues have worsened the recession.

The 30 percent tax on foreign currency purchases, which remain limited to US$200 a month, will include those made with credit cards.

"We need to discourage savings in dollars that we don't produce," said the economy minister, who added that taxes on peso savings would be scrapped.

Guzmán also announced a rise in rates of personal property taxes as well as those on financial assets held abroad.

"In this context of such a deep crisis we need the contribution of all sectors," he said.

"This set of measures seeks to maintain certain balances, and change priorities to protect sectors that are highly vulnerable," the minister said.

He announced a bonus of 10,000 pesos (US$160) for pensioners, to be paid in two tranches in December and January.

"This is about stopping the Argentine economy from falling while we protect those we can't ask more from," said Guzmán.

The minister added Tuesday that, in order to put public debt on a sustainable path, the government first needs to “determine a sequence of primary fiscal and trade results that are consistent with a recovering economy.”

Economic turmoil

Argentina's economy is expected to shrink by around 3.1 percent in 2019, as inflation hovers around 55 percent, poverty near 40 percent and unemployment rising to 10.5 percent.

Fernández was swept to power in large part due to a public backlash over the terms of a US$57-billion loan his predecessor Mauricio Macri negotiated with the IMF last year.

With Argentina's rising debt came deeply unpopular austerity measures.

Fernández vowed to put Argentina "back on its feet" after winning October's election.

Argentina has so far received US$44 billion of the agreed IMF loan, taking its external debt to US$315 billion, around 100 percent of gross domestic product, according to AFP.

Fernández said he would reject the remaining disbursement, which was delayed until after the Argentine elections, believed to be around US$11 billion.

Last week at his inauguration ceremony, Fernández said Argentina wanted to honour its debt but wouldn't do so at the expense of the country's people.

"We want to have a good relationship with the IMF but without growth we won't be able to pay," said Fernández, accusing Macri of leaving the country in "virtual default" following 18 months of economic turmoil triggered by a currency crisis.

– TIMES/AFP/BLOOMBERG

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