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ECONOMY | 17-08-2019 11:05

President echoes opponents with post-PASO measures for pockets

In wake of heavy defeat in primaries, Macri administration annonuces salary hikes, tax cuts and slashes IVA off basic food products, in bid to tackle runaway inflation and get voters back onside.

President Mauricio Macri waded into the traditional Peronist policy landscape this week, announcing a raft of measures to revive the pay levels of workers and ease the pressures on businesses, especially PyME (or SME) small and mediumsized companies.

The package, including tax breaks, pay bonuses for public employees and child benefit recipients and a higher minimum wage, was quickly understood as a reaction to his shattering defeat in Sunday’s PASO primary elections, which gave opposition rival Alberto Fernández a 15-point lead over the incumbent, thus deeply complicating his re-election bid.

Yet Wednesday’s announcements wer e f a r f r o m being a complete picture – not only because some of its ingredients fell by the wayside but also because more measures emerged the following day.

The initial measures weren’t free of controversy. A move to freeze fuel prices for 90 days was rejected the following day by oil companies (reluctant to produce below cost and world prices), forcing the government to threaten to use the Ley de Abastecimiento (“AntiHoarding Law”) in order to push the measure through.

A pension booster was also expected as part of the package but never materialised.

The next day Interior Minister Rogelio Frigerio announced that UVA mortgage payments would be frozen for the rest of the year, while a couple of hours later in the early evening Macri announced that IVA valueadded tax would be eliminated from 14 basic food products, shortly followed by Production and Labour Minister Dante Sica’s appearance at a press conference to flesh out the details.

The objective is to “lessen the price increases” that will follow the devaluation of the peso, Sica told reporters.

Reducing IVA on food items has historically been a demand put forward by unions, social organisations and leftist parties. In the past Mac r i h a s describ e d such dema nds a s “ p o pu l i sm and demagogy.”

Sica rebuffed claims that the government was seeking to curry favour with voters following its poor showing in the PASOs. “This is not demagogy or electioneering,” he told the press.

FISCAL TARGETS

Despite all these tax cuts (with raising the income tax floor by 20 percent one of Wednesday’s main announcement), the government denied that its fiscal targets were in jeopardy.

On Wednesday Macri was at pains to underline that he understood the problems faced by the citizenry amid steep inflation, falling purchasing-power and rising poverty levels with jobs at risk, also apologising for his Monday press conference when he blamed the market chaos of that day on Sunday’s Kirchnerite PASO triumph. Insisting that he had heard and understood Sunday’s message from the voters, Macri claimed that his new package “would benefit 17 million workers and their families, and above all the PyMEs.”

Apart from the tax breaks (which included a 10-year moratorium for PyMES as well as the higher income tax floor), the mea su res i ncluded t wo 1,000-peso child benefit bonuses next month and in October for jobless and informal workers, a 5,000-peso bonus at the end of this month for state employees (including the Armed Forces and other members of the security forces) and a 40-percent increase in the Becas Progresar higher education scholarships.

Thanks to the higher income tax floor, some two million people will now enjoy an extra 2,000 pesos per month on average in September and October, the president announced. The new floor will be a gross salary of 55,376 pesos for a single worker and 70,274 for a worker with a spouse and two children. Selfemployed workers will also see their payments to AFIP tax bureau halved for the rest of the year.

In addition, the minimum wage (currently 12,500 pesos) is to be raised for the second time this year, although the exact percentage has yet to be defined by the Minimum Wage Council grouping state officials, trade unionists and business leaders. The government is eyeing around 30 percent in mind but trade unions are pushing for between 31,000 and 50,000 pesos.

In initial reactions, economists were sceptical that the measures would either turn around the PASO primary result or do much to counter a devastating devaluation (with the peso falling 18.76 percent on Monday alone despite Central Bank intervention while the stock exchange’s Merval index fell 38 percent or more than twice that percentage).

“I think it’s difficult to see this changing the election results,” said Daniel Artana, chief economist at FIEL economic think tank. “The difference is really big, it’s really hard to reverse the primary results.”

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