Public spending can and should be lowered, and we have a proposal to do it 

From Fundación Libertad y Progreso we have developed and presented concrete proposals to reduce public spending.

There are five action fronts:

  1. administrative expense;
  2. pension expenditure;
  3. social plans;
  4. economic subsidies, mainly to energy and transport;
  5. Public works and non-priority investments.

      1. Administrative expense:  Rationalization of the National Administration

It is outlined in the following steps

– The Executive Power approves by decree its new structure (see attached image). The decree will be issued within the framework of the powers established in Law 25.164, on Public Employment. The administrative units dependent on each of the eight ministries will be defined, up to the level of national directors, general directors and decentralized agencies. The decree will establish the staffing of each administrative unit, by category.

– Once appointed the ministers of the new structure. Transiently, for 90 days, the administrative units of the old structure are assigned to each of the new ministries.

– This 90-day period is established so each new minister covers the positions of each administrative unit of the new structure. The personnel to assign and designate in the new structure will be chosen among those existing in the previous one.

– Once the re-classification of the personnel has been completed, those that have not been relocated in the new structure will remain in the condition of availability established by Law No. 25.164 Art 11.

– In order to facilitate the transfer to the private sector of public employees in availability, incentives will be granted to companies that hire them: a) it will be exempted from employer contributions for a period of two years; b) 70% of the fees and training expenses in the new job, up to a maximum of three salaries on the date of availability, will be considered as an advance payment of the income tax of the contracting company.

– The labor reform should be finalized to improve competitiveness and reduce labor risk, in order to boost the creation of private employment.

– Early retirement will be granted to those who remain in availability,  that would not have obtained employment in one year and are over 55 years of age.

– Agreement with State Governments will be renegotiated with personnel reduction goals to return to the levels of 2001 in a reduced period.

    2. Social security system

It’s not expected the real level of pensions and retirement to be reduced, but disability pensions granted in the last 10 years through medical audits will be revised.

– The retirement age will be matched of men and women in 65 years

– Retirement ages will gradually rise until reaching 70 years in the next ten years

     3. Social plans

The current social plans will be reviewed suppressing in a period of six months those that:

a) do not fulfill the conditions of its granting.

b) they are assigned to individuals or families that expose a level of income from a different source, formal or informal, of the social plan and higher than an amount to be defined.

    4. Subsidies to energy and transport

The goal should be set to bring public service tariff levels to real levels in six months, adjusted by the consumer price index of December 2001. Social rates will be applied with an established objective criterion on the information of the recipients of subsidies (AUH, etc.)

    5. Suppression or postponement of non-priority public works

Cases should be selected based on their economic evaluation indices. This analysis should also include projects categorized as Priority Investment Projects and those chosen for the Public Private Program in which state guarantees are granted. As exemplary cases to suppress, we can mention the Regional Express Network (RER) project and one of the atomic power plants with Chinese funding.

    6. Provincial spending reduction

The fundamental thing is that State and Municipal governments have incentives to spend less and better.

Today, because of the co-participation regime, the bulk of the governors have the benefit of spending but not the punishment of increasing their taxes. The system encourages them to present faits accomplis and obtain from the Nation aids above the co-participation.

Our proposal is to return tax powers to the provinces eliminating the vertical co-participation of Nation to provinces. The Nation would collect VAT, Income tax from legal entities and taxes on Foreign Trade. The provinces would collect taxes on the Income of individuals, internal, personal goods and their own taxes (changing gross income tax for a tax on final sales).

The Tax on Fuels would be a State Tax but will go to a Horizontal Redistribution Fund whose percentages of distribution by State will allow the necessary compensations to produce the connection with the distribution of the current regime. This will make the new regime politically viable since no one would lose or gain a share. The distribution percentages of this Fund will then remain unchanged so that from there the governor who wants to increase his spending will have to increase his own taxes. If you want to attract investors you must lower taxes. With 24 provinces there will be competition to attract investments. With only one tax collector there is none. Everything possible should be done in the provinces of Cambiemos with the methodology proposed by the national government.

The effect of our proposal on reducing spending

The realization of the measures would allow reducing public spending by 6% of the GDP, with the following breakdown.

  1. Administrative rationalization National Government: 1.1%
  2. Provincial administrative rationalization: 1.9%
  3. Debugging of social plans: 1.0%
  4. Reduction of energy and transport subsidies: 1.1%
  5. Suppression of non-priority public works:  9%
  6. Total Savings: 6.0%

With this reduction in expenditure, the financial deficit would be eliminated and, therefore, it would no longer be necessary to place new net debt. It would only be necessary to take debt to pay the capital amortizations.

In terms of the percentage of GDP, the proposed reduction is less than half of the increase in public spending in the period 2003-2015. The provincial savings, which were favored by the 2017 fiscal agreement, should be transferred to the Nation to complement its repayment flow.

These figures do not include the sale of buildings and other assets that become vacant with administrative rationalization. It would be a one-time income.

The expense must and can be reduced. We’re still on time.

To look at the complete proposal of reforms of Libertad y Progreso “Progress in Freedom”, click here. We also invite you to see our videos detailing our proposals here


Original in Spanish