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Argentina’s First National Strike Pressures Fernandez on Tax

Argentina’s biggest unions held their first national strike against President Cristina Fernandez de Kirchner as slowing growth and 24 percent inflation undermine the government’s ties to its labor supporters.

Hugo Moyano, head of the country’s largest labor confederation, known as the CGT, called on workers to strike today to seek a rise in the threshold for income tax payments after salary increases pushed them into a higher tax bracket. Fernandez rejected Moyano’s request yesterday, saying that only 19 percent of workers pay the tax.

“We are demanding what the working class legitimately deserves,” Moyano told thousands of supporters rallying in front of the presidential palace in Buenos Aires today. “We have to convince the government to abandon its arrogance. Mrs. President, you lose nothing by talking to workers and other sectors of our society.”

The strike comes as the government, blocked from international credit markets since a 2001 default, resorts to import restrictions and tighter oversight of the foreign currency market to stem capital flight and bolster central bank reserves. Argentina’s budget surplus excluding interest payments fell to 2.4 billion peso ($530 million) in May from 3.1 billion pesos a year earlier.

“The fiscal outlook is no longer comfortable for the government and that’s why it won’t give in to the union’s demands,” said Boris Segura, a Latin American strategist at Nomura Securities International in New York.

Cutting Shifts

Argentine industrial production fell for a second straight month in May as auto output dropped 24 percent and companies including Fiat SpA and Renault SA cut shifts. Consumer confidence slid 4.4 percent in June, according to Buenos Aires-based Torcuato Di Tella University. Consumer prices rose 23.5 percent in May from a year earlier, according to private estimates, compared with the 9.9 percent reported by the national statistics agency.

Moyano supporters waving Argentine flags and carrying signs from the CGT’s different unions gathered at the Plaza de Mayo square, adding to traffic around the capital that prompted flight delays at Buenos Aires’ two biggest airports. Television station C5N said about 25,000 people took part in the rally, which ended at about 4:15 p.m. local time.

Fernandez, 59, didn’t address the strike today during a speech in the western province of San Luis.

Union Support

The CGT, whose supporters include teachers, textile workers and truck drivers, was a reliable ally for Fernandez’s late husband and predecessor, Nestor Kirchner, organizing rallies and turning out voters. Fernandez said she’s shown her commitment to labor by backing wage increases of more than 20 percent per year and raising the income tax threshold in previous years. Some CGT members, including unions representing taxi and bus drivers and metal workers, aren’t participating.

“We have increased the threshold every year except in 2009, the year of the crisis, when we had to defend the fiscal accounts and inject money into the market,” Fernandez said yesterday at the presidential palace. “Today we are in an almost similar crisis as the one we faced in 2009.”

Argentina’s economy will expand 2.75 percent this year, according to the median estimate of four economists surveyed by Bloomberg, compared with 8.9 percent last year.

Government’s ‘Backbone’

Moyano, whose CGT was called the “backbone” of Fernandez’s government in 2011 by then-Cabinet Chief Anibal Fernandez, said the government needs to do more.

“Wage increases are useless if the minimum threshold is not raised,” Moyano told reporters on June 21. “We invite to all those who see themselves hurt by this tax to participate in the rally so the government understands that it’s committing a tremendous injustice.”

Today’s strike comes a week after truck drivers halted work and caused fuel shortages throughout the country, forcing Fernandez to return earlier than planned from the Rio+20 summit in Rio de Janeiro. The strike ended after truckers signed a 25.5 percent wage increase for the year starting July 1. A separate strike by oil workers in Chubut province is crimping output by Pan American Energy LLC, owned by BP Plc.

Tax Collection

Argentina’s tax revenue rose 20.6 percent in May from a year earlier, the smallest increase since February 2010. Fernandez’s government collects about 20 billion pesos a year from income taxes, about 1 percentage point of the country’s gross domestic product, according to Jorge Colina, an economist at Buenos Aires research company Idesa. Workers who receive at least 5,800 pesos a month pay the tax, Colina said.

“The people who support policies that result in such high public spending with subsidies for transportation and energy are the same people who are demanding a tax cut,” said Colina. “The government doesn’t update the minimum threshold because it helps it collect more through taxes.”

Nomura’s Segura cut his 2012 GDP forecast to 2 percent this month from an earlier forecast of 3 percent, saying that Fernandez’s decision to nationalize YPF SA, the country’s biggest oil company, controls over the currency exchange market, restrictions on imports and fast inflation are undermining the economy and investor sentiment.

“Argentina may face a similar situation as in 2009 but that would be because of self-inflicted wounds and unfortunate policy decisions,” Segura said in a telephone interview. “The measures taken by the government affects growth because they generate lack of confidence by investors.”

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