Interesting fiscal experiments in Argentina

 

Three headlines from Argentina caught my attention over the past week or two.  First, President Milei is abolishing their equivalent of the IRS.

Argentina’s government has announced it will dissolve its current tax bureau and replace it with a new “simplified” agency, cutting a third of jobs in the process.

. . .

The new entity will maintain AFIP's current dual role of overseeing tax collection and customs monitoring.

More than 3,000 AFIP agents who joined during former president Alberto Fernández’s 2019-2023 government will be laid off as part of a 34 percent reduction of current staffing levels, said the statement.

. . .

“This measure will reduce senior authorities by 45 percent and lower levels by 31 percent, which represents an elimination of 34 percent of the [overall] current structure, generating annual savings of 6.4 billion pesos," said the government’s statement.

The statement also said it would eliminate rules ensuring large salaries for senior officials, lowering their pay to similar to that of a Cabinet minister.

There's more at the link.

Next, the President is offering a tax amnesty for previously undeclared income and savings.

Argentines are declaring hundreds of millions of dollars of previously hidden savings in a tax amnesty that libertarian President Javier Milei hopes will boost the country’s moribund economy and scarce foreign exchange reserves.

. . .

Argentina’s long history of economic turmoil, marked by hyperinflation, currency controls and governments restricting access to savings, has pushed citizens to hold some $258bn in dollars outside its financial system, according to official estimates for early 2024. An unknown portion has not been declared to authorities.

Experts said most Argentines keep savings in dollars — either stuffed under mattresses, in safety deposit boxes, or in accounts in the US and other countries.

The government believes tapping those greenbacks would help solve its two biggest problems: reinvigorating a real economy that has been battered by a long-running crisis and Milei’s austerity measures, and adding to the central bank’s dangerously low hard currency reserves.

Again, more at the link (which may be paywalled).

Finally, one Argentine province, dominated by left-wing politicians, has taken to issuing its own currency in response to cuts in Government subsidies.  It's valid only in that province, and only if merchants will accept it.  Unsurprisingly, many won't.

Across La Rioja's capital, “Chachos accepted here” decals now appear on the windows of everything from chain supermarkets and gas stations to upscale restaurants and hair salons. The local government guarantees a 1-to-1 exchange rate with pesos, and accepts chachos for tax payments and utilities bills.

But there’s a catch. Chachos can’t be used outside La Rioja, and only registered businesses can swap chachos for pesos at a few government exchange points.

“I need real money,” said Adriana Parcas, a 22-year-old street vendor who pays her suppliers in pesos, after turning down two customers in a row who asked if they could buy her perfumes with chachos.

. . .

But as Milei and his allies tell it, Quintela’s alternative offers little more than a return to Argentina’s habitual Peronist preserve of reckless spending — and insolvency — that delivered the unmitigated crisis that his government inherited.

“You were used to having your tie fastened for you and your shoes polished, but now, you’ve got to tie the knot yourself,” Eduardo Serenellini, press secretary of Milei’s office, snapped at La Rioja business leaders on a recent visit to the province. “When you run out of cash, you run out cash.”

Serenellini picked up a chacho note, then flicked it away like lint.

More at the link.

That last story is surprising only in that one province has done so;  the others, who may resent the heck out of President Milei's policies, have refrained.  Nevertheless, the "deep state" equivalent in Argentina hates his guts, and would like nothing better than to see him removed.

Milei is cutting through decades of feather-bedding the bureaucracy, cutting government employment, slashing budgets, and ignoring screams of outrage from socialist-oriented trades unions.  In economic terms, his reforms are producing results, reducing inflation from unmanageable proportions to something much more bearable.  Unfortunately, to do that, he has to gore all sorts of sacred cows, and there's always the danger that those left out in the cold by his reforms will throw him out by hook or by crook and demand a return to the socialism that crippled Argentina's economy for so long.

I wish him luck . . . and I hope we may see some of his reforms in this country, too.  Whether or not that's a pipe-dream remains to be seen.

Peter