The new budget rule is zero deficit

Argentina never did real fiscal surplus in over a century. He succeeded several times because he did not pay the interest on the public debt.

Even before the renegotiation of the public debt due to the 2002 default is completed, the country will again be significantly fiscally red in 2008.

From 2008 to 2023 (16 years), the national government posted an average fiscal deficit of 4.6% of GDP. During this period, it accumulated more than 74% of GDP, equivalent to a deficit of US$450,000 million in today’s prices, not counting the BCRA or provincial deficits. An average of nearly $30,000 million per year.

To finance this fiscal deficit, public debt has grown by US$300,000m (50% of GDP) over the past 20 years, the government has drained BCRA reserves by US$100,000m until they reach zero.

In addition to raising the tax burden to an international record level, private savings (AFJP), companies (YPF) and even an attempt to expropriate foreign trade flows were also expropriated (with Resolution 125, which was promoted in 2008). Martin Lousteau).

As all this was not enough, a large part of the fiscal deficit (BCRA issuance) was also monetized to return to chronic double-digit inflation for the year and even bring the economy to the brink of new hyperinflation at the end of the year. government Alberto Fernandez.

For almost the entire period, the economy did not grow and became noticeably poorer, so the population demanded a radical political change and for the first time in history decided on a libertarian party.

In the first nine months of the new government, one-third of public spending was adjusted, almost 5% of GDP, equivalent to $30 billion a year. The national government’s public expenditure fell to 1999 levels and managed to restore fiscal balance.

It is worth noting that what is summarized in three lines has not been achieved, according to polls, in more than a century of economic history, even with a minority in the legislature and without a loss of social support.

Also in parallel BCRA’s quasi-fiscal deficit was eliminatedwhich is equivalent to 10% of GDP ($60,000 million per year).

It is worth recalling that by underestimating the problem of the endogenous emission of BCRA interest-bearing liabilities, the radical government in 1989 ended up with hyperinflation. Let’s change in the bullfight that led to the IMF bailout in 2018, and that Peronism to close the imbalance, true to its style, there was an expropriation of all deposits from the private sector on only two occasions (Bonex Plan 1989/1990, Boden 2002).

The current government solved it without falling into a hyperinflationary collapse, without the help of international organizations and by respecting all contracts in the economy. The quasi-fiscal deficit rose from 10% of GDP in 2023 to zero in mid-2024.

Between the Ministry of Finance and the BCRA, the Milea government made a historic adjustment of 15% of GDP. It went from a $90,000 million deficit in 2023 to a “zero deficit” from the first month in the case of central government and in just over 6 months in consolidated with BCRA for macroeconomic management. Not only was hyperinflation interrupted, but so was what could become the worst economic crisis in Argentine history.

The important about Budget 2025 is that the paradigm has been completely changed. The government is committed to not running a fiscal deficit regardless of the context. There were significant negative imbalance proposals that required legislative authorization to increase the public debt by more than $15,000 million a year in order to finance it, but the deficit was eventually doubled and ended up needing funding that added the “little machine” from BCRA and various expropriations .

The 2025 budget now has no deficit and the government is committed to sticking to it regardless of the economic context, so it is not asking for new debt to be authorised.

It is based on a macroeconomic scenario, but will not condition a zero deficit commitment. If more is withdrawn, taxes are saved and/or reduced. If less is collected, unindexed items will be adjusted.

The government anticipates economic recovery where the economy grows by 5% next year, where all components of GDP grow. Inflation will ease to 18.3% m December to December and the exchange rate will see a variation of the same magnitude, peaking at 1,207 pesos.

It further projects that exports will continue to grow at a rate of 9% per year, while imports will grow by 13.4%, which would allow for a significant trade balance of more than $20 billion between goods and services, so keep the currency market nourished.

On fiscal matters, he anticipates improved tax collection due to economic reactivation, improved real wages and greater export offsets than the previous year, which will boost withholding tax revenues. All this, added to the profit recovery, will more than offset the end of the ISVS tax at the end of the current year.

Tax collections are estimated to increase by 0.5% of GDP to the equivalent of 22.9% of GDP.

Excluding co-payments, the nation estimates resources at 16.5% of GDP, an amount slightly lower than expected for the current year, and spending at the same level to maintain fiscal balance for the second consecutive year.

A slight improvement in social security spending and public sector wages will stand out, offset by smaller economic subsidies (increased rates for the private sector) and a reduction in the deficit of public companies.

In short, the projected scenario is not important for the 2025 budget, which also does not differ much from private expectations, which also expect GDP to grow by 3.5% and inflation to fall to less than 40%, according to REM BCRA. , but the commitment of the national government to defend the budget balance in any economic context as it would achieve in the current year.

Finally, in 2023, public spending reached a record 47% of GDP between the nation, provinces, municipalities and BCRA.

Even after adjusting in 2024 by more than $100,000 million between all levels of government, the size of the consolidated state still exceeds 30% of GDP.

According to may pact An adjustment of close to the equivalent of $40,000 million is still needed to return to a state that does not exceed 25% of GDP and allows taxes to be cut equally across all levels of government.

The author is the director of the consulting firm Econometrica