Flaws in the floor

The timing of President Cristina Fernández de Kirchner’s decision to raise the income tax floor was more surprising than a percentage cleaving to what might be called the government’s 20/20 vision (i.e. that percentage both to up the income tax floor and set this year’s wage hike ceiling), which had already been anticipated several weeks ago, while the 15 percent pension increase was even less extemporaneous, simply the first of the two statutory annual adjustments (every March and September) announced several weeks in advance.

Nothing in CFK’s 55-minute speech seems to have placated either friend or foe in trade union ranks — least of all the specious argument of claiming a levy lower than a subway token by applying the new tax floor to current wages still awaiting this summer’s collective bargaining increase which would take them into fresh fiscal traps (raising this floor after two years of immobility amid high inflation and ahead of updating wages effectively means one step forward and three steps back). These new traps would make the fiscal sacrifice rather less than the eight billion pesos claimed by CFK, who had previously told trade unionists that she would raise the income tax floor if they could give her revenue alternatives (akin to the concept of exporting the equivalent of everything imported) — the labour leaders immediately proposed such boom beneficiaries as the banking, farming and mining sectors, which sounds a great idea except for the snag that there has been no boom in Argentina for the last 15 months, thus making any windfall taxation ill-timed. But CFK announced no new levies, which can mean one of two things — either she trusts in new traps (plus high indirect taxation on all income tax rebates passing to consumption) or else another nationwide broadcast is around the corner.

Labour grievances can be exaggerated — CFK’s claim that only one worker in six is affected does not ring so false when the average wage in the third quarter of 2012 was 3,707 pesos with half the workforce below 2,919 while the new tax floors are 8,360 and 11,563 pesos for single and married employees. Yet while the government delights in announcing revenue growth figures often exceeding even private inflation estimates, there is less rejoicing at the receiving-end. There is a strong case for saying that the sequence of events leading to the 2001 collapse began with the resignation of Alliance economy minister José Luis Machinea at the start of that year due to the extreme unpopularity of his “tax maxi-grab” — spending other people’s money is not always a surefire formula for success.