Subsidies fall but state spending continues to rise

Translated from La Nación Soon after announcing the last increase in prices of trains and buses, the Minister of Transport, Guillermo Dietrich, admitted that in spite of these increases there would not be a significant reduction of the subsidies paid by the State and that they constitute one of the main reasons for the fiscal deficit.

According to the national budget approved for 2018, the amount of subsidy for public transportation this year would be around 4.9 billion Dollars, a figure very similar to that of 2017. This forecast would imply a drop in subsidies in real terms, compared to annual inflation that the government of Mauricio Macri projects at 15% and that, according to different economists, could be a few points higher. But this saving for the State is not enough, especially when it’s compared to the political and social cost of any increase in passenger transport.

Unlike transport, the savings obtained in terms of subsidies to energy were significantly more important. According to a report by the Institute for Social Development of Argentina (Idesa), based on data from the Ministry of Finance until November 2017, energy subsidies were reduced last year by 3.4 billion Dollars compared to 2016. But the problem arose in which the rest of the economic subsidies rose by 1.6 billion Dollars, while the national programs of education, health, housing, sanitation and social development that are executed in the provinces increased by another 1.7 billion Dollars in the same period.

The conclusion is that what the national State saved by reducing energy subsidies and the consequent increase in electricity and gas tariffs was used to increase public spending on other items.

“The bulk of non-energy subsidies mostly go to public transportation and its main purpose is to subsidize the city of Buenos Aires and the suburbs of the city. The same type of deviation lies in the overlapping national programs with functions of the provinces and municipalities” states the work done by Idesa, according to which resources could be saved if the Nation abandoned the historical practice of wanting to supplant provincial and municipal functions. The vertiginous growth of the disbursements of the National Social Security Administration (Anses) also contributes to savings in energy subsidies not being noticed in the final fiscal accounts.

The Idesa study points out that while the Consumer Price Index (CPI) of the Indec (National Census Organism) said that inflation of 2017 amounted to 24.8%, the so-called “core inflation”, which excludes seasonal products and regulated prices, was 21.1%. It’s derived from these data that “what is relevant is not so much the deviation that the adjustment of rates causes in the inflation index, but the fact that inflation remains high, even without considering the adjustment of tariffs”.

The explanation attributed, to this phenomenon, by different economists is related to the high level of public spending and the State’s financing needs, which have an impact on the high fiscal deficit.

Economists from the Libertad y Progreso Foundation, such as Aldo Abram and Agustín Etchebarne, have insisted on the need that, instead of borrowing to finance the payment of salaries in the public sector, the State take debt to finance the reduction of public employment, which between 2001 and 2016 went from 2.3 million to 3.6 million agents. An impressive figure if one takes into account that this growth represents 56% when in the same period the total population increased by just under 20%.

If we only look at the provinces, the growth of public employment takes on greater dimensions, as the number of provincial public agents per thousand inhabitants was 36 in 2001 and 52 in 2016, which implies an increase of 44%.

The recent commitment of fiscal responsibility signed by the provincial governors with the national government hardly obliges the former to guarantee that public employment in their provinces won’t grow more than the increase in the population rate and that public spending does not increase in a rate higher than the inflation.

The alternative that is being studied by the national government, announced by LA NACION, to offer provincial governors financing plans for early and/or voluntary retirement of public employees it’s the first step towards a reduction of personnel in the state administration. An innovation, but it remains to know whether such a program will be financed with loans or with subsidies. 


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