Argentina reveals tax cut proposals in pro-marke... about:reader?url=https://www.ft.com/content/6...

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Argentina reveals tax cut

proposals in pro-market reform
drive
Benedict Mander in Buenos Aires October 31, 2017
4-5 minutes

Argentina’s centre-right government unveiled sweeping

proposals to cut taxes on Tuesday, in the first of a series of
pro-market reforms expected to follow the ruling coalition’s
victory in midterm legislative elections just over a week ago.

The proposals, which officials hope congress will approve

by the end of the year, aim to reduce the tax burden by 1.5
per cent of gross domestic product over the next five years,
as President Mauricio Macri strives to make Argentina’s
economy more competitive. 

Emboldened by a strong performance in midterms that left

the opposition in disarray, Mr Macri called on Monday for an
era of “permanent reform” in a speech before diverse
representatives of society, including powerful regional
governors, lawmakers, judges and business and trade
union leaders. 

The fundamental aim of Mr Macri’s reforms, which are also

expected to include the announcement of an amnesty plan

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for informal workers soon, is to modernise Argentina’s

economy and shrink the state so that its chronic fiscal deficit
can be eliminated. 

The tax reforms, inspired by successful similar reforms in

Chile and Uruguay, were designed to make Argentina’s
arcane and onerous tax code simpler, clearer and fairer,
while bringing it into line with global practices. 

“We have a problem. We have to recognise this and we

have to confront it,” Nicolás Dujovne, treasury minister, told
reporters on Tuesday, arguing that the reforms would boost
economic growth by 0.5 per cent per year for at least five
years. 

He said the reforms would stimulate investment, which

economists argue is the key to unlocking sustainable
growth. Investment accounted for just 15 per cent of GDP in
2016, but Mr Dujovne predicted that it would rise to 17 per
cent in 2018, as confidence gradually returns after a decade
of populism. 

Indeed, on Monday rating agency Standard & Poor’s raised

Argentina’s long-term sovereign credit ratings from B to B+,
citing higher investment and progress in improving
competitiveness as factors that would help to sustain
economic growth. 

Mr Dujovne’s proposals include a reduction in taxes for

businesses that reinvest profits from about 35 per cent to 25
per cent, and would see employer social security taxes
slashed. But they would also add a 15 per cent capital gains
tax on profits from foreign currency instruments and 5 per

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cent on peso fixed-income instruments. 

The implementation of the proposed reforms over a five-

year period corresponds with Mr Macri’s overall strategy of
“gradualism” in rebalancing Argentina’s macroeconomic
distortions, which is being financed by international credit to
avoid austerity measures. 

The backstory

FT editors select the stories that explain how President

Mauricio Macri’s reforms are transforming Argentina

Indeed, Mr Dujovne explicitly recognised on Tuesday that

the government’s objective of lowering the tax burden
clashed with its other central aim of cutting the fiscal deficit,
forcing both policy goals to be carried out gradually. 

The tax proposals are the first of what is expected to be a

series of announcements in the coming days, as well as the
beginning of negotiations with regional governors over how
to reduce and redistribute spending. 

“For the first time Argentina is going to discuss an issue that

it has never discussed before: how much we pay in taxes,
how much we can reduce the fiscal deficit, how the state’s
money is shared out,” said Carlos Pagni, a political
commentator. “This [could be] what leaves Macri’s mark on
history.” 

Mr Macri also said on Monday that he would convene a

commission to propose changes to Argentina’s pension
system, and pledged to reform the justice system to combat

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corruption and increase its independence.

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