Economy Politics

Emergency economic bill makes its way through Congress

19th December 2019

By Natalio Cosoy

Emergency economic bill makes its way through Congress

President Alberto Fernández’s economic plans are finally being revealed, as well as rapidly moving forward. The large reforms included in his Social Solidarity and Productive Reactivation bill are likely to be turned into law by the end of the week, a mere three days after being filed for discussion on Tuesday.

With the ruling Frente de Todos coalition not holding a majority in the House of Representatives, however, the toing and froing could just be beginning, as the fine print of the bill could still see some changes later today due to negotiations with centrist and provincial caucuses in the Lower Chamber before its final approval on Friday in the Senate.

</p> <p>&#8220;Building a State that is guided by the ethics of solidarity and respect for constitutional rights, requires consistent policies to promote the universality of social rights, such as access to adequate food, education, health, and housing and the development of an autonomous life based on the income from work,&#8221; said Fernández in a letter accompanying the bill sent to Congress.</p> <p>The buzzwords had been relentlessly repeated: social solidarity, productive recovery, national pact. Now the small print is coming in, and winners and losers are becoming clearer, prompting resistance from the different opposition groups.</p> <p><iframe title="SESIÓN COMPLETA (PROCESANDO): H. Cámara de Diputados de la Nación - 19 de diciembre de 2019" width="1778" height="1000" src="https://www.youtube.com/embed/gd3KhA9nWBs?feature=oembed" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe></p> <h2><strong>Delegation of powers</strong></h2> <p>Possibly the main contentious point –and there are plenty– for opposition representatives is that, while declaring a multiple emergency on “economic, financial, fiscal, administrative, social security, energy, health and social issues,” the bill requests that the President is given ample powers to decide on policy, meaning Congress would not need to be consulted on subjects that usually require it.</p> <p>That would not only mean losing power for legislators, but also affect the workings of the state. The Executive argues it needs these powers to be able to tackle these emergencies without delay.</p> <p>That is why Mario Negri, a Unión Civica Radical (UCR) party member who presides the Cambiemos coalition in the Lower House, said on Twitter that his party would not back the bill, because &#8220;it cancels the constitutional functions of Congress and delegates its faculties to the Executive branch.&#8221;</p> <p>&#8220;Furthermore,&#8221; he added, &#8220;we decided not to grant quorum for Thursday&#8217;s session.”</p> <p>Negri and his colleagues were particularly concerned about pensions (see below), as well as by proposals to grant regulating powers over public utilities to the nation (which belonged to the provinces) and to give leeway to the Executive to redesign 70 decentralized state agencies that range from the administration of public goods to technology institutes and financial watchdogs.</p> <p>The bill also allows the government to quite freely reassign budget items, after the 2020 budget bill presented by Mauricio Macri earlier this year was rejected by Peronism and a new one is unlikely to pass until next year.</p> <p>In opposition to Negri and his UCR party and Cambiemos coalition colleagues in Congress, Jujuy province governor Gerardo Morales also took it to Twitter to argue quorum should be granted even if some changes could be discussed afterwards. Morales, like other opposition governors in financial trouble, is trying to forge an alliance with Fernández in exchange for some financial relief. Their support is likely to push some opposition senators to grant the two-thirds special quorum needed in the Senate to bypass the one-week mandatory waiting period between today’s approval in the House and tomorrow’s discussion in the upper chamber.</p> <h2><strong>New and higher taxes</strong></h2> <p>The bill’s main features are economic in nature.</p> <p>&#8211; One of the most salient is the creation of a 30 percent tax on foreign currency purchases, which also applies to purchases abroad via credit or debit card or on foreign-based digital platforms such as Netflix or Spotify.</p> <p>Although they would now be taxed, the government does not plan to remove the USD 200 monthly limit on foreign currency purchases – a move aimed at protecting the Central Bank’s foreign currency reserves without letting the <a href="https://gettheessential.com/economy/2019/12/19/infographic-the-pesos-ever-growing-list-of-exchange-rates-argentina-blue-chip-swap-exports-imports-black-markets-gap">exchange rate</a> float freely (and likely devaluate further).</p> <p>&#8211; Seventy percent of the income generated by this new tax would be destined to prop up social security funding, while the other 30% would be invested on infrastructure and housing, the bill states.</p> <p>&#8211; Property taxes will also increase, jumping to 0.5 percent per year for those in the lower bracket (starting at 5 million pesos, or USD 80,000), and reaching 1.25 percent per year for those who own 18 million or more, with single homes excluded and the possibility of imposing an extra penalty of up to 100 percent of the tax for those storing their wealth abroad.</p> <img class="wp-image-6285 aligncenter" src="https://gettheessential.com/wp-content/uploads/2019/12/kulfas-1-300x169.jpg" alt="Productive Development Minister Matías Kulfas defends the new bill before committee on Tuesday" width="479" height="270" srcset="https://gettheessential.com/wp-content/uploads/2019/12/kulfas-1-300x169.jpg 300w, https://gettheessential.com/wp-content/uploads/2019/12/kulfas-1-768x432.jpg 768w, https://gettheessential.com/wp-content/uploads/2019/12/kulfas-1-600x338.jpg 600w, https://gettheessential.com/wp-content/uploads/2019/12/kulfas-1.jpg 940w" sizes="(max-width: 479px) 100vw, 479px" /> <p>&#8211; The government also asked for an authorization to increase export duties on soybean exports by up to 33 percent (amounts can also be lower at the sole discretion of the Executive, but not higher), as well as up to 15 percent to wheat and corn (up from a maximum of 12 percent).</p> <p>These export duties are strongly resisted by most farmers, who organized demonstrations on Wednesday on roads in the countryside as well as in front of Congress, in the capital, although a group of small scale farmers had indicated it backed the tariffs and others considered them to be, if not desirable, at least tolerable.</p> <p>With farmers making up a significant part of Cambiemos’ voting base, their pressure to oppose the bill is being felt by congresspeople. Farmers are even threatening with countrywide strikes (one will already take place on Thursday and Friday in the Northern provinces of Argentina).</p> <p>&#8211; The bill also creates a new tax on cash retrievals from banks made by companies (individuals are exempted), as a means to incentivize a more cashless, less informal, economy and sets the corporate income tax to 30% (it was supposed to fall to 25% in 2020).</p> <p>&#8211; It also contemplates an increase from 2.5 to 3% of a tax –<em>tasa de estadística</em>– on imported goods.</p> <p>&#8211; On the other hand, it includes a very broad tax moratorium for small and mid-sized companies, who have been struggling with recession and falling behind on their payments, as well as tax returns for citizens with lower incomes. The opposition has called for rebates or some kind of prize for firms who paid their taxes on time despite the crisis.</p> <h2><strong>Pensioners: unexpected losers?</strong></h2> <p>In another contentious point, the bill proposes a 180 day suspension in the indexation formula that automatically updates pension payments to senior citizens and other social security disbursements, devised during Mauricio Macri&#8217;s presidency.</p> <p>If Macri’s formula is kept in place, pensioners should get a 28% increase on the first half of 2020.</p> <p>But according to the bill, until that formula is redefined, the government would unilaterally determine every quarter by how much would pensions increase, prioritizing those earning less, and –it is believed– leaving the bigger earners with a smaller increase than the formula would have provided.</p> <p>This would mean many pensioners could be counted as part of the losers of the bill, even though Fernández had pledged during his campaign to protect them. But pensions are the largest item in the budget (60%), and the government believes it cannot achieve fiscal stability without touching that pot.</p> <p>On the other hand, though, experts consider that if this point is implemented as it is it could also lead to legal challenges, which would in the end translate into more expenditure for the State.</p> <h2><strong>Debt renegotiation, utilities, health emergency</strong></h2> <p>&#8211; A key element in the bill addresses the need to renegotiate Argentina&#8217;s debt, both with the International Monetary Fund and with private bondholders. Without too much detail, the bill proposes to give the Executive powers to &#8220;recover the sustainability of public debt.&#8221;</p> <p>&#8211; But it also includes a commitment to pay its more immediate obligations, as it authorizes the government to issue 10-year notes up to almost USD 4.6 billion and use them to buy the equivalent amount of dollars from the Central Bank with the exclusive purpose of paying dollar denominated maturities.</p> <p>&#8211; The bill also proposes to extend how much of ANSES’ social security agency’s pension fund (FGS) can be held in government bonds from 50 to 70% for the whole duration of Fernández&#8217;s government, a tool that might be used to prop up the value of government bonds.</p> <p>&#8211; It also argues for gas and electricity utility prices to be frozen for six months, in line with campaign promises to make basic services more affordable, while a new method to update those bills after that period is devised.</p> <p>&#8211; And it plans to cancel a planned reduction in companies’ social security contributions and give powers to the government to decide salary increases in the private sector, bypassing sector negotiations to a degree.</p> <p>It also includes a chapter declaring a public health emergency, which gives powers to the Public Health Ministry to review how taxes affect health-related companies and organizations, find alternatives (such as direct purchases) to tackle increases in the price of medicines, and other measures, like removing custom levies on imported vaccines. (Some of Fernández’s biggest allies during the campaign come from the health sector.)</p> <h2><strong>Circus back and forths</strong></h2> <p>With all the power it grants to the Executive, it was not surprising to see objections from many lawmakers. So it took lots of politics to get the ball rolling.</p> <p>On Tuesday, President Fernández agreed with the governors to suspend a gradual reduction in provincial taxes. That was a first move to get their backing and the support of their provinces&#8217;s legislators.</p> <p>Thursday session in the lower house was at risk of not getting enough lawmakers in their seats to start the session.</p> <p>And there was an added issue: more than 20 of the government&#8217;s party legislators resigned to join the cabinet, and their replacements were due to be sworn in on that same day. But if the opposition did not provide quorum for the session to treat the emergency law, those new legislators could not have been sworn in.</p> <p>Things were getting so difficult for the government that at some point they threatened to have the 20 cabinet members resign from their posts, return to Congress to secure quorum, vote, and then be named again into the cabinet. In the end, there was an agreement to carry out two sessions. One to swear in the substitute lawmakers and one to discuss the new bill, with the biggest opposition only providing quorum in the first.</p> <h2><strong>Government concessions<br /> </strong></h2> <p>To secure that quorum for the second session was granted, the government had to <a href="https://www.cronista.com/economiapolitica/Emergencia-cuales-son-los-cambios-que-introdujo-la-oposicion-y-los-que-aun-negocia-20191219-0009.html">give in to some demands</a> from small caucuses.</p> <p>The first one was the scrapping of article 85 of the bill, which granted what lawmakers saw as excessive powers to the President to redesign the State and many of its decentralized organs.</p> <p>Some changes on the scope of export duty hikes and on pension reform were also being discussed, with Alberto Fernández himself saying on Twitter that he was willing to add some compensation for small farmers who might be disproportionately affected by the hikes.</p> <blockquote class="twitter-tweet" data-width="550" data-dnt="true"> <p lang="es" dir="ltr">Por eso propuse incorporar un artículo que disponga que el Poder Ejecutivo deberá establecer mecanismos de compensación de los efectos de los derechos de exportación específicos para pequeños productores y cooperativas.</p> <p>&mdash; Alberto Fernández (@alferdez) <a href="https://twitter.com/alferdez/status/1207720094756982784?ref_src=twsrc%5Etfw">December 19, 2019</a></p></blockquote> <p><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script></p> <p>The bill that finally comes out of the lower house will be debated in the Senate on Friday, where the government has a solid majority, and is expected to promptly pass, although the details of the agreement will not be known until later today.</p> <p>

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Natalio Cosoy

Natalio Cosoy is the Argentine correspondent for France 24 in Spanish and has worked for the BBC, the Deutsche Welle and the Washington Post.