Economy Minister Sergio Massa has thrown his portfolio’s support even further behind his campaign for the Casa Rosada, announcing a raft of post-devaluation measures to boost pockets just one month out from the election.
In a move initially trailed to the press last Sunday, the ruling Unión por la Patria coalition’s presidential candidate announced that he would hike the income tax floor to exempt millions of workers from paying.
The government on Wednesday sent a bill to Congress to amend the levels so that workers earning less than 1.77 million pesos (US$4,857) per month won’t have to pay income taxes as of October, up from the previous threshold of about 700,000 pesos. A new scale of payments for those above that sum will also be introduced from the start of next year.
Effectively, the new rule would mean that only 80,000 to 90,000 top executives and high-ranking managers nationwide would have to pay – less than one percent of total registered workers.
Also on Wednesday, reacting to the news that August’s inflation rate hit 12.4 percent, the government launched a programme to return IVA value-added tax which will benefit the self-employed (monotributistas), pensioners, workers below the income tax floor and recipients of the AUH (Asignación Universal por Hijo) child benefit. The refund will cover items in the basic shopping-basket and articles of hygiene up to 18,000 pesos monthly.
Speaking at the Economy Ministry, Massa said that the August inflation shock and last month’s devaluation of the peso had led to “the state taking the initiative to return the effort which everybody has to make to reach the end of the month." The official admitted that "August was the month which hit Argentine pockets the hardest."
"Our programme refunds an IVA of 21 percent on the total basic shopping-basket to the nine million Argentine workers who earn wages of up to 700,000 pesos," he explained.
Massa said the measures would permit "a start on working towards the recovery of income in Argentina, which is the sustained path we must tread not only in the next quarter but in the next four years," forecasting a government triumph in the upcoming elections.
The official said that he had ordered AFIP tax bureau "to automatically establish a very important benefit for millions of Argentines, a programme to return the 21 percent IVA on the total of the basic shopping-basket for the nine million Argentines earning wages of up to 700,000 pesos."
He explained that the measure also extends to the monotributista self-employed, AUH beneficiaries and domestic workers.
"Every worker and pensioner will have an automatic IVA refund on their purchases throughout the month within 48 hours up to 18,800 pesos, which is what today’s legislation permits,” he detailed
The minister underlined: "This is the most progressive tax measure we could take, making a fiscal effort on the basis of renouncing other state spending and using funds."
"We are seeking to compensate for all the hurt represented by the impact of the inflation from the devaluation imposed by the International Monetary Fund ," Massa said, blaming the multilateral lender.
He also criticised the IMF for "imposing on Argentina a devaluation, product of that agreement signed in 2018 to finance capital flight, provoking a terrible debt and establishing a programme which obliges us to co-exist with the Fund."
MAssa explained that "no red tape" would be required for the benefit, which would be cleared in all shops and supermarkets for products of the basic shopping-basket and personal hygiene.
The minister also announced that starting Monday, credits of up to 400,000 pesos to be repaid in 12, 24 or 36 fixed instalments would be available at an interest rate of 50 percent. In addition, the food booster programme of PAMI healthcare scheme for the retired would be extended to a monthly 15,000 pesos in the next three months.
Massa asked shops "to use formal sales so as not to rob people of the benefit of the IVA refund" while consumers should buy with their debit cards to obtain the benefit.
Massa's move to hike the floor for 'ganacias' was widely condemned by his presidential race, while the opposition Juntos por el Cambio caucus in the lower house Chamber of Deputies announced they would vote against the bill.
"We are not going to accompany Massa's path to hyperinflation," members of the caucus said in a statement.
The minister spoke about the move on Monday at a rally in Plaza de Mayo, saying that the measure aims at “exclusively taxing top incomes.” Those exceeding the equivalent of 15 monthly minimum wages would still be eligible for income tax, he added.
The government’s bill adds that “a progressive scale for these upper incomes is incorporated, ranging between 27 and 35 percent.”
"Workers, their salaries, their overtime, their per diems no longer pay income tax," he continued, as demonstrators shouted: "Se ve, se siente, Massa presidente" (“You can see it, you can feel it, Massa president!”).
Until October the income tax floor in Argentina had been 700,870 pesos (around US$1,920) with less than 800,000 workers liable to pay, according to the minister.
The new floor of 1.77 million pesos (around US$4,850 at the official exchange rate) will kick in from October.
Massa, who is the government’s presidential candidate but has not decided to step down from the helm of the economic portfolio, claimed Monday that the wages in Argentine pockets would improve by up to 21 percent with this measure.
Police officers, doctors, teachers and pensioners are among those to benefit with the aim of reaching "over eight million Argentines," informed the Economy Ministry in a statement.
Text of bill
The text sent for parliamentary approval details: “The tax is determined according to the following mechanism: it takes into consideration, at the start of the fiscal period, the value of the minimum wage on the first day of the given year, updating it on July 1 each fiscal year while considering the value of the minimum wage at that new date.”
It further proposes that “the tax withholdings on the net income during the first half of the fiscal year will be adjusted taking into consideration the value of the minimum wage in the month of July every time that the progressive scale definitely applying for the entire annual period, corresponds to the sums of the July minimum wage.”
The bill continues: “In this way less than one percent of current tax-payers among workers and pensioners will be paying the tax, which will only reach the top salaries among employees and privileged pensions.”
At the same time it considered that “this measure will eliminate the distortions created by computing the personal and general deductions which oblige wage-earners and pensioners to remain pending on administrative questions related to the determination of the tax.”
“For employers this will mean lower operational costs when it comes to complying with their tax obligations,” argued the government in favour of its bill.
The Casa Rosada justified this tax shift by pointing out: "Every year we have worked on elaboration measures tending to ensure that this levy is progressive, thus avoiding that its burden neutralises the incomes policies adopted."
Argentina’s government is seeking to moderate the effects of a post-electoral devaluation of around 20 percent along with treble-digit inflation running at 124.4 percent per annum.
The first round of the general elections will be held on October 22.