OFICINA DE PRESUPUESTO DEL CONGRESO - Oficina de Presupuesto del Congreso

ANALYSIS OF ADMINISTRATIVE DECISION ON THE DISTRIBUTION OF BUDGET LAW No. 27,591 FOR THE FISCAL YEAR 2021

by Juan Fourcaud | Jan 21, 2021 | Budget Law

The Chief of Cabinet of Ministers published Administrative Decision No. 4 by which it distributes the budgetary appropriations for the year 2021 in accordance with the provisions of the Budget Law.

The amendments introduced by the National Congress to the bill sent by the Executive Branch required reallocations for AR$ 97.82 billion but did not entail an increase in the total spending approved by law, but rather compensations, basically due to the reduction of Treasury liability items.

ANALYSIS OF NATIONAL TAX REVENUE – December 2020 and yearly total

by Juan Fourcaud | Jan 14, 2021 | Tax Revenue

Driven by an incipient economic revival and the increase in Wealth tax rates, tax revenue grew 38% in nominal terms and 1.6% in real terms in December, registering for the fourth consecutive month an increase above inflation. However, in 2020, it suffered a real drop of 7.4% year-on-year, which doubled that recorded in 2019 and completed a cycle of three consecutive years of decline.

In the last month of last year, VAT revenues grew 11.7% YoY and recorded the first real increase in twenty-six months. But there were falls in Social Security and Export Duties resources since the rise in the exchange rate did not offset the fall in foreign trade.
The recessionary context, deepened by the pandemic, is the main reason why tax revenue has fallen in 23 of the last 25 months in real terms.
The annual drop in VAT (17.7%) tripled the drop recorded in 2019 and the Income Tax doubled its decrease (-7.1%).
The combination of a drop in registered employment and the lag of nominal wages with respect to the general price level makes the rate of expansion of the wage base to be systematically below that of the CPI since June 2018. Social Security resources fell 11.4% in real terms last year.
The improvement in the exchange rate did not prevent the decline in revenues from Export Duties (29.5%), partly conditioned by the advances in foreign trade operations made by the agro-industrial sector at the end of 2019.
Despite previous regulatory reforms to strengthen revenue, in the first quarter of last year there was already a real drop in revenues, prior to the beginning of the social isolation caused by the pandemic.
In April, inflation-adjusted revenues fell 23.7% YoY, the sharpest drop since April 2002, largely due to the decrease in activity caused by the Mandatory Preventive Social Isolation (ASPO).
Tax relief measures to alleviate the economic effects of COVID19 on taxpayers reduced tax collection by an estimated AR$79.2 billion in the first half of 2020.
The year ends with four consecutive months of positive variations.

TAX EXPENDITURES – METHODOLOGICAL ISSUES AND ANALYSIS OF 2021 BUDGET

by Juan Fourcaud | Dec 17, 2020 | Tax Policy and Fiscal Federalism

Due to tax exemptions and promotional regimes, the Budget Law estimates that next year’s tax expenditure will be AR$995.8 billion, equivalent to 2.64% of GDP, a level comparable to that of this year.

Of this total, 73.9% consists of special tax treatments included in the current tax legislation (AR$735.7 billion) and the rest is for various economic promotion regimes (AR$260.1 billion).

For 2020, total tax expenditures are expected to reach AR$714.7 billion, equivalent to 2.63% of GDP and with a similar composition.
In the projection for next year, lower VAT collection stands out, with a total of AR$444.3 billion (1.18% of GDP); more than half of it is due to reduced rates on meat and vegetables.
Fuel Tax is the second largest tax expenditure, with AR$132.7 billion, mainly explained by the difference between the rates applied to gasoline and diesel fuel (AR$83.36 billion).
Nearly half of the reduced income tax collection (AR$85.5 billion) is due to the exemption applicable to the income of judges and officials of the national and provincial Judiciary.
The two promotional regimes with the highest tax expenditure are those of the province of Tierra del Fuego (AR$77.8 billion) and Knowledge Economy (AR$18.4 billion).

The deferral of tax payments, the accelerated amortization in Income Tax and early refund of tax credits in VAT are not considered tax expenditures; these measures are mainly contained in different promotional regimes.

ANALYSIS OF NATIONAL GOVERNMENT BUDGET EXECUTION – NOVEMBER 2020

by Juan Fourcaud | Dec 14, 2020 | Budget Execution

During the month of November, total revenues of the National Government showed an expansion in real terms of 27.0% year on year (YoY) because of the transfer of profits from the Central Bank of Argentina (BCRA) to the National Treasury in the amount of AR$150 billion. If these resources are excluded, total revenues would have fallen by 7.4% YoY.
Tax revenues fell 6.0% YoY, and the 31.1% YoY increase in Income Tax revenues failed to offset the drop in VAT (4.5% YoY) and Export Duties (46.0% YoY).
Primary expenditures (after adjustment of capital expenditures executed in previous years) had, for the first time since March, a variation of less than two digits (1.7% YoY).Considering debt interest (-39.6% YoY), total expenditures in November fell by 18.4% YoY.
By the end of November, AR$32.8 billion of expenditures related to COVID-19 were recorded.
The primary balance shifted from a deficit of AR$105.5 billion in November 2019 to a monthly surplus of AR$57.1 billion in November 2020. The negative financial balance decreased from AR$186.6 billion to AR$9.8 billion.
However, if exceptional revenues, such as transfer of profits from the Central Bank to the Treasury, and expenditures recorded in 2019 that belong to previous fiscal years are not included, November’s primary deficit is equivalent to AR$92.9 billion, which implies a 77.4% deterioration compared to the one recorded in the same period of 2019.
The Pensions item had a contraction of 5.2% YoY due to the decrease in the number of beneficiaries of the system and the benefit mobility policy.
Economic subsidies (AR$60 billion) had a real YoY increase of 19.6%, basically due to those related to energy.
The initial budget for the fiscal year increased by AR$2,7 trillion and 62.9% of this amount was allocated to reinforce social benefits.
Executed expenditure as of November 30 represents 80.6% of current budget appropriation.

ANALYSIS OF NATIONAL TAX REVENUE – NOVEMBER 2020

by Juan Fourcaud | Dec 9, 2020 | Tax Revenue

Tax revenue amounted to AR$649 billion in November, a nominal growth of 36.7% YoY, which is explained by the gradual increase in the level of activity, but mainly due to the payment facilities arising from Income Tax and Wealth Tax deadlines that this year took place in August. Revenue from the second income tax collection for transactions subject to PAIS tax also had a positive effect.

The real variation was 0.1% YoY in November, the third registered so far this year, partly due to the modified calendar of tax deadlines, the relaxation of social isolation, and a lower base of comparison with respect to November 2019.

In absolute terms, the taxes that most contributed to the nominal increase in revenue were Income Tax (39%), Value Added Tax (28.6%), Wealth Tax (10.6%) and Social Security resources (12.5%). PAIS Tax decreased its share due to greater restrictions applicable to taxable transactions. For this reason, it contributed only AR$8.5 billion.

TAX BURDEN ON PRODUCTIVE ACTIVITY. MAIN RESULTS

by Juan Fourcaud | Dec 3, 2020 | Tax Policy and Fiscal Federalism

The purpose of this report is to evaluate the consolidated tax burden on the meatpacking, metal-mechanic, supermarket, transportation, and hotel sectors in thirty locations in the country.

Under certain assumptions and without including some taxes such as Fuel Taxes or Export Duties, the average tax burden is equivalent to 12% of the companies’ turnover.

There is an important tax burden dispersion by activity and location. From a minimum of 7.5% of the total turnover for a meat packing activity carried out by an SME in the city of San Luis, to a maximum of 17.3% for a large hotel in Bariloche.
There are also differences in the tax burden depending on whether it is a small or large company and between firms in the same industry: from 25% in hotels to 50% in the meat packing sector.
There is double or triple taxation due to the overlapping of taxes, which makes it difficult to know the real cost that the productive sectors face.
This study refers to a tax burden baseline and is limited by the lack of information requested from chambers of commerce and municipalities, but which was not provided.