Argentina's Macri Gives Tax Breaks as Inflation Quickens

  • Minimum tax threshold to be raised to 30,000 pesos, or $2,010
  • Macri says dedicated to lowering inflation as fast as possible

Argentine President Mauricio Macri on Thursday announced income tax breaks and additional social benefits in a bid to appease the country’s powerful unions as he negotiates salary increases amid accelerating inflation.

Macri unveiled a new minimum threshold at which Argentines must begin paying income tax, fulfilling one of his main campaign pledges. The new floor means those who earn less than 30,000 pesos ($2,010) a month will be exempted from income tax. He also widened a program of conditional cash transfers for poor children to include a further 1.2 million families, representing a 32 percent increase in the benefit’s reach.

Macri is facing a difficult balancing act as he tries to appease union leaders, curb inflation, and reduce the widest fiscal deficit in 30 years. Former President Cristina Fernandez de Kirchner’s final years in power were marked by a series of nationwide strikes by workers pushing for tax reform amid rising living costs.

“We all know about the effects this perverse inflation has had on our community,” Macri said at an event in the presidential palace before an audience of union leaders. “We are working on reducing inflation as quickly as possible because it affects our capacity for growth and our people’s purchasing power.”

Fernandez last raised the minimum tax threshold to 15,000 pesos ($1,005) in 2013. Other tax brackets have been unchanged since 2001 even as annual inflation exceeded 20 percent for the past eight years, meaning almost all taxpayers were thrown into the maximum tax bracket of 35 percent.

While reducing income tax may prove a popular measure, it will add to the challenge of cutting a fiscal deficit that currently stands at 5.8 percent of GDP. Macri has already slashed export tariffs on most agricultural products and reduced the export tax on soybeans by 5 percentage points to 30 percent. He also eliminated export tariffs for the mining industry.

The measure means a further 180,000 Argentines will now be exempt from income tax which will cost the government 49 billion pesos ($3.3 billion) in revenue, tax agency head Alberto Abad said in a separate press conference.

The government will send a bill to Congress proposing modifications to the remaining tax brackets this year, Abad said.

“It’s clear that eight years of inflation destroy any tax,” Abad said. “In order to repair the tax’s structure we need to do it in steps. This is the first step.”

The government plans to reduce the deficit by 1 percentage point in 2016 and to eliminate it by the end of Macri’s term in 2019. Tax cuts and benefits to vulnerable families will create an additional 100 billion pesos ($6.7 billion) in expenses that will require additional sources of revenue, Finance Ministry Alfonso Prat-Gay said January 14.

Inflation quickened in January, with consumer prices rising 4.1 percent from a month earlier compared to a 3.9 percent rise in December, according to an index produced by the city of Buenos Aires. Annual inflation stands at 29.6 percent.

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