The New England economist Dr Hale refuses to give himself, or me, a break even during Thanksgiving week. He writes: “No new questions this week, not only because I’ve been distracted by Thanksgiving but also because on the few occasions I’ve clicked into your news, all I see is the submarine search (news down there seems incomplete of late without somebody or something missing). But mostly Thanksgiving, a tradition born in my part of the world and now only four years away from four centuries. Last week Turkey was one of Standard & Poor’s ‘Fragile Five’ countries we were discussing and this week it’s become a huge part of my diet and probably for much of the week to come as well.
“But nor do I need any new questions because that rain cheque (as it would be spelled in Old not New England) I allowed you last week regarding President Mauricio Macri’s reforms was already drying up while we communicated when the governors were signing the fiscal pact.That pact looks serious enough with a wealth of numbers and specific targets while the political support also seems pretty solid with every prospect of being whipped through Congress. So no excuses for any more delays in explaining it all to me. Let’s talk turkey, so to speak.”
“No more excuses in terms of the cards now being on the table but you’re still being far too impatient in expecting me to anticipate any results or impact. And not just because the proof’s always in the pudding but also according to the government’s own criteria. Many of the adjustments agreed with the governors will only be kicking in over a period of five years (with bond payments stretched over 10 years) – if the Bolshevik Revolution was 100 Novembers ago, ‘Chairman Mau’ now has his own version of Joseph Stalin’s five-year plans while Leon Trotsky’s ‘permanent revolution’ has been rephrased as ‘permanent reformism.’ The semantic shift to the latter phrase from the ‘gradualist’ label invariably tagged onto the Macri administration is not insignificant – while ‘gradualism’ implies slow but steady progress toward a final objective, ‘permanent reform’ means that you can never stop adjusting to the changes of a Sisyphean world.
“Given that it is the product of a broad political consensus, this pact deserves high marks for being numerically specific over several key points rather than the vague catalogue of good intentions usually characterising such documents but numbers do not always guarantee clarity any more than verbiage. Thus both the conceptual and mathematical contradiction between cutting deficits and taxation at the same time should be too obvious to need explaining – short of the pension reform being far more drastic than it seems, this would only be possible on the basis of massive cuts in state payrolls which are nowhere in sight (only some timid vacancy freezes). Or a more specific example – the cheque tax is to pass completely to ANSES social security administration but at the same time is slated for elimination as a ‘bad tax’ (in point of fact the letter of the pact eludes explicit mention of this levy, which might well be the joker in the pack).
“No clear road map for public spending cuts but this pact raises the bar for reducing the deficit since it is not fiscally neutral – if next year’s target is to lower the deficit by a point from 4.2 to 3.2 percent of Gross Domestic Product, the net sum of tax cuts adds around 30-50 percent to that target. Yet the economic team does not see the levels of taxation and deficit as a zero sum game because they are counting on growth coming to the rescue according to the classic supply-side logic – growth not only of GDP (which means the same level of public spending translates into a lower percentage of deficit) but also of revenue due to the expansion of the tax base thanks to a highly successful whitewash.
“If we turn from the national to the provincial level, it is impossible to find one size which fits all – thus nine of the 24 districts are in the black while the other 15 are in the red (and here it would be simplistic to limit the blame to spend thrift Peronism since Corrientes is the only district ruled by Macri’s Cambiemos, or Let’s Change, coalition to figure among the solvent) and the gross earnings tax in line for downsizing accounts for around 80 percent of the revenue of some provinces and almost nothing in other cases.
“In some ways this pact has the worst of both worlds because while it asks the simple consumer to absorb immediate increases in excise or the novel levy on individual financial profits in exchange for mediumterm gains in the form of the presumed growth from the investment encouraged by corporate tax cuts, the state equally has to bridge a gap from a short term of continued fiscal imbalance to a medium term of expected solvency and growth – a gap which it can only bridge with more debt for now.
“This analysis does not give you a detailed rundown of a comprehensive reform package which includes labour, pension and judicial chapters apart from the fiscal pact but even if emails are mercifully not limited to 140 characters, I believe they can only be so long. Such aspects as the dismantlement of the obsolescent Greater Buenos Aires Fund or the waiver of provincial litigation against the national government (at a price, of course) are too important to escape mention – perhaps at some point in the near future I can explain to you in fuller detail the new deal for Buenos Aires Governor María Eugenia Vidal to the tune of 105 billion pesos. A list of the specific tax measures is not difficult to obtain.
“Yet while I can no longer claim that this analysis is writing in sand, nor are any of these reforms written in stone. A minority government has yet to push this legislation through Congress with trade union, business and other lobbies lurking. Nor are any of these reforms irreversible according to the government’s own premises of ‘permanent reformism.’ Nothing is immune to change in today’s world, Dr Hale – next Thanksgiving you might consider putting the cranberry sauce on your pumpkin pie.”