Argentina to Pay Back Federal Taxes to Provinces Over Five Years

  • Govt sets out timetable to gradually pay back provincial funds
  • Move is result of negotiations with opposition leader Massa

Argentine President Mauricio Macri’s administration agreed to return taxes that were diverted to a state pension fund from regional governments over the next five years.

The government will create an agency to oversee the return of the funds, which represent 15 percent of taxes that should have gone to the provinces since 1992, according to a decree published Wednesday in the Official Gazette. The decree didn’t give the size of the payments.

Former President Cristina Fernandez de Kirchner had agreed the immediate payment of the funds after the Supreme Court ruled in November that she had to repay the money to Cordoba, San Luis and Santa Fe provinces. She then extended the ruling to all the provinces, putting pressure on her successor Macri as he seeks to close what his government says is the largest fiscal deficit in 30 years. Today’s decree gives him more time to make the payments.

The accord is the result of negotiations with opposition leader Sergio Massa who heads an opposition bloc in congress, said Ignacio Labaqui, a senior analyst at Medley Global Advisors in Buenos Aires. Without Massa’s support, Macri could have been forced to pay back the funds in a shorter timescale, Labaqui said.

“It allows Macri to kick the can down the road,” Labaqui said by phone from Buenos Aires. “Evidently he had to concede, but the consequences aren’t much worse.”

Macri’s government in January set out a plan to begin slashing a fiscal deficit of 5.8 percent of gross domestic product by 1 percentage point this year with the aim of reducing it to virtually zero by the time his term ends in 2019.

Interior Minister Rogelio Frigerio, who will head up the new council created today, said the government is working on ways to distribute federal taxes more fairly.

“The president told us to work together with the 24 governors to find a way to gradually pay back the federal funds to the provinces,” Frigerio said, according to a statement. “We want to advance toward a form of federalism that is more equal, finding political solutions for the old problems of funds distribution.”

Before it's here, it's on the Bloomberg Terminal.