President Alberto Fernández said on Monday that the national government would pay federal tax revenues to Buenos Aires city government in the form of bonds. 

His announcement indicates that the national government will comply with a Supreme Court order to direct more tax funding to the city, after he controversially declared on Friday that his administration would not respect the measure. 

However, Buenos Aires city government said in a statement on Monday afternoon that it would not accept the proposal.

Fernández reiterated that he believed the Supreme Court ruling from last week was “flawed” and damaged the state’s finances. The national government is continuing to seek a judicial review of the ruling and the removal of the justices involved. 

In an announcement made via social media, Fernández said that he had ordered the reallocation of “the only resources available” from 2022’s budget, implying that the State did not possess the funds to comply with the Court’s resolution in cash. Payments for the upcoming 90 days would be made with bonds, he said. 

The conflict started in 2020, when Fernández’s administration cut Buenos Aires city’s share of federal tax revenues from 3.75% – a percentage set during Mauricio Macri’s presidency – to 2.32% in September, slashing it further to 1.4% a few months later. 

Buenos Aires city government appealed the decision to the Supreme Court, which ruled last week that the federal government must increase the capital’s share of revenues to 2.95%. 

The payments will be made with inflation-indexed sovereign bonds that mature in 2031 (TX31 bonds), meaning the payments will not be made on a daily basis. The decision to use bonds comes after a 2015 ruling determining that the federal government could use bonds to pay Santa Fe provincial government. “They’re not injuring the City of Buenos Aires’ rights, unless the Court believes that there are first-class cities and second-class provinces,” Fernández tweeted.  

Finally, he announced he would send a bill to Congress to include the Court’s ruling in the 2023 budget. “The bill will preserve our federal system, avoid affecting our provinces, and compensate them for the loss that the precautionary measure will cause them.”

Last week, several Juntos por el Cambio representatives filed legal complaints against President Fernández, Interior Minister Wado de Pedro, Chief of Staff Juan Manzur, and over a dozen governors, after the government challenged the Supreme Court ruling that raised the federal tax share for the City of Buenos Aires to 2.95%. 

Buenos Aires mayor Horacio Rodríguez Larreta, committed to file a complaint, were the government to effectively disobey the Court ruling. 

The legal battle represents one of the biggest disputes involving the three powers in recent years: the executive power reacted to a ruling by the Supreme Court that modified a law passed by Congress. 

After Fernández’s announcement, Juntos por el Cambio representatives welcomed the news that the federal government would comply with the payments. “We won!,” President of right-wing party PRO, Patricia Bullrich, tweeted.

Rodríguez Larreta: “Democracy is at stake”

The Mayor of Buenos Aires and members of his political party, Juntos por el Cambio, spoke publicly after the president Alberto Fernández and fourteen of his allied provincial governors announced that they would pursue the removal of Supreme Court justices following their tax share ruling.

Earlier on Friday, Rodríguez Larreta said he will report to the Court that their ruling has not been followed, and will file complaints against all the politicians involved. He vowed to “do whatever it takes to enforce the ruling.”. He also described the President’s move as anti-democratic, and claimed that he and his party would protect Argentina’s constitution and the separation of powers.

Juntos por el Cambio issued a press release stating that “one cannot just decide whether the Constitution is enforced or not, since it’s the law’s final word… Questioning the Constitution from the highest rung of political power not only endangers the functioning of our institutions, but also the legal and contractual security of all Argentines.”

Alberto Fernández’s administration reduced Buenos Aires’ share of the funds from 3.75% – a percentage set during Mauricio Macri’s presidency – to 2.32% in September 2020 through a decree and, some months later, to 1.4% through law 27.606, which has now been suspended.

The city government of Buenos Aires appealed the decision to the Supreme Court, which determines judicial and political decisions’ constitutionality. Earlier this week, the Court ruled that the federal government must increase the percentage to 2.95%.

Buenos Aires’ Juntos por el Cambio administration celebrated, and Horacio Rodriguez Larreta announced he would cut taxes as a result of the measure. Nevertheless the President and governors of over a dozen provinces criticized the ruling for being unfair to the rest of the provinces as well as being impossible to implement after the budget of 2023 was approved.

As both Horacio Rodrguez Larreta and Alberto Fernández have declared their intentions to run for president in 2023, the Supreme Court’s ruling could be interpreted as support for the current mayor of Buenos Aires.