March 11, 2014
A wealth of confusion
The Cabinet infighting exposed by the U-turn on the wealth tax is all the more serious for occurring on the first day of the presidential return from an extended convalescent leave — her presence sufficed to provide a final decision but not to clarify the processes of policy-making. The confusion also discredits the Cabinet overhaul in the wake of last October’s midterm electoral defeat and not just because the two main stars of that shuffle, Cabinet Chief Jorge Capitanich and Economy Minister Axel Kicillof, were caught contradicting each other — those changes had been designed to restore clarity to economic policy by ending pentagonal decision-making with new Economy Ministry and Central Bank helms and the exile of Guillermo Moreno, thus leaving AFIP tax bureau chief Ricardo Echegaray as the sole survivor, but that was enough to sow strife. It is also hard to believe that any of the conflicting announcements on the wealth tax from the various officials were uttered without presidential approval, which takes the problem of government indecision right up to the top.
At least two key questions remain to be answered concerning the U-turn over boosting the wealth tax — was it the right decision and if so, was it made for the right reasons? On paper, the decision to levy the wealth tax on the basis of market rather than fiscal real estate values (casually raised by Echegaray last Friday amid the powerful distractions of the 2013 revenue figures and his controversial Brazil trip) has its own logic. Given that the market values are several times the fiscal, it is difficult to present the current system as anything other than glorified tax evasion and the budget deficit screams for action to soak up some of the red ink. Yet the unanimity of the rejection is surprising — not just the likes of City Mayor Mauricio Macri but also leftwing deputies like Claudio Lozano and Néstor Pitrola (who is convinced that the combination of inflation and a 305,000-peso tax floor would penalize the middle and working classes). The question then arises as to the reasons why President Cristina Fernández de Kirchner backed Kicillof against Echegaray’s scheme and Capitanich’s announcement — was she shying away from unpopular corrective action in favour of the far more socially unfair “inflation tax” (the price of financing the deficit by printing money)?
Following her 2011 landslide, CFK passed up “fine-tuning” rather than risk unpopularity, only to lose 20 percent of the electorate last spring — can the government’s authority survive these new vacillations in harder times?