Argentina ends income tax, offers relief worth $5.7 billion before presidential elections
Argentina’s Economy Minister and presidential hopeful Sergio Massa.
Argentina is eliminating income tax for most of its formal workers ahead of the election season. The move has been taken to offer relief to people hit by rising inflation; however, experts fear it will end up further ballooning the fiscal deficit.
The Latin American country is reeling under a massive 124 per cent inflation before October’s presidential elections, pushing the ruling party to roll out generous schemes.
Legislation eliminating income tax was approved by the country’s Senate on Thursday (Sep 28) by a 38-27 vote, which was backed by Argentina’s Economy Minister and presidential hopeful Sergio Massa.
The bill is expected to be signed into law by President Alberto Fernandez. Presidential elections will be held in Argentina on October 22.
A political move
It is to be noted that the economy ministry has already exempted around 99 per cent of the formal workforce from paying taxes through a decree. However, the new legislation eliminates the income taxes altogether.
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Only those earning more than $5057 per month will be exposed to the income tax provisions, who account for a tiny fraction of the total workforce. The new government will assume the charge on December 10 and can very well reverse the changes to steer the nation out of the financial mess.
Some observers are seeing it as a political move, aimed at reclaiming lost electoral ground.
Free handouts
The Argentinean government is also planning to offer payouts to informal workers in October and November.
Two welfare checks of $268.60 each will be offered, funded by taxes imposed on banks and other major companies who the government believes have benefitted the most from a currency devaluation that followed the Aug 13 primary vote.
“We have made the decision to charge an extraordinary income tax to those sectors that were the biggest winners of the devaluation imposed by the International Monetary Fund,” he said while justifying the imposition of extra tax.
Burden on economy
All of these freebies will cost the government a whopping $5.7 billion, which will be largely financed with central bank money printing that will fuel future inflation.
The increased fiscal spending, along with the lost revenue due to the elimination of income tax, heightens risks to Argentina’s $44 billion programme with the International Monetary Fund after Massa had committed to austerity in August.
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