The Argentine Congress is at boiling point. In a boldly defiant move, the opposition has forced Congress to consider a bill proposing changes to Argentina’s badly broken income tax system, something the government had wanted to defer until 2017.

National congressman, Sergio Massa, is at the helm of a full-blown attack on the government that draws together basically everyone who is opposed to the ruling Cambiemos party. On Monday, Frente Renovador (Renewal Front) representatives, as well as a slew of other legislators, requested that their bill proposing changes to Argentina’s minimum taxable income rate be discussed in an “extraordinary” session on Thursday. If passed, the bill would see a huge chunk of the population exempted from paying income tax – about 1.1 million people, according to Massa.

But wait. This is awkward. The government has its own proposed income tax legislation. The only thing is they had wanted to discuss this bill in “ordinary sessions” and for it to come into effect next year (it’s a lot of revenue). Now, based on the opposition’s surprise move, the government is rushing through its own bill.

Supporting actor in a Scorsese film or national congressman, Sergio Massa?
Supporting actor in a Scorsese film or mischievous national congressman, Sergio Massa? Via Expendiente Politico

Income Tax in Argentina

Resolving inconsistencies in income tax is a long-standing issue, and one that various politicians have had a crack at, unsuccessfully.

When it comes to income tax, Argentina is supposed to have a progressive income tax system, meaning that those who earn the most pay more (compare with a flat IVA, or Value-Added Tax on goods and services, where all pay the same). However, the system is not working properly. According to economist Ariel Setton, failure to update the laws has resulted in income tax going from 19 to 23% of total national tax revenue over the last six years, putting a heavy burden on low-income earners. There have been various “stopgaps” applied to resolve the issue, however they have resulted in further distortions. In February of this year, Macri raised the tax free allowance to $42,381, though he also repealed a 2013 decree exempting workers who earn $15,000 pesos each month from paying tax. This year, 50,000 more workers paid income tax than last.

Key difference between the two projects

Cambiemos

During his election campaign last year, Macri promised to abolish income tax (it’s probably less crazy than it sounds for an argentine – Argentina has low income tax rates by world standards, tending to recover more tax through other sources). However, with government coffers looking a little dry, this possibility is no longer even on the table.

Instead, the government proposes moderate changes to the current scheme. The minimum taxable income will be increased by 15% to reflect changes to inflation. Those individuals who earn less than $21,713 and those families that earn than $25,000 per month will not have to pay tax, a 15% increase on current figures. 

There will be changes to the deductions you can make. The tax free threshold, tax deductions for children and the special deduction will all be augmented by 15% (which is less than 17% inflation anticipated for next year.)

It also anticipates widening the tax scale, so that the lowest tax bracket would go from paying 9% to 5% tax on their income. A plan to increase the highest tax bracket from 35% to 45% was scrapped.

According to Massa, the same amount of workers – or more – will continue paying income tax.

The Opposition

The opposition’s proposal would see a huge chunk of the population paying less or no income tax. Massa’s Frente Renovador (Renewal Front), says that 1.1 million people will no longer have to pay income tax under their legislation.

The Opposition proposes raising the minimum taxable income by 60%. For married workers with two kids, the minimum would be fixed at AR $48,000; for unmarried individuals (or “childless singles” in Spanish, either a pejorative or complimentary term, depending on your outlook), it would go from AR $22,000 to 35,000. There would also be possibility of making deductions for living in Patagonia (because it’s cold, windy and far away), for disabled children, or for renting.

A salary is not a profit,” said Massa, at a press conference, like the good Peronist that he is. “The Argentine economy works when pensioners and workers have money in their pockets.”

This would have a fiscal cost of AR $48 billion pesos, which Massa’s team proposes recuperating with increased taxes on mining, gaming, as well as the boost in IVA revenue that increased consumption will lead to (less income tax = more spending, under this logic.)

What Happens Now?

Cabinet Chief Marcos Peña confirmed that the executive would send the bill to Congress for consideration, though the government is currently waiting on a resolution from the Federal Tax Administration, AFIP, before proceeding.

Editors Note

In yesterday’s article, we incorrectly said that the minimum taxable income hadn’t been updated since 2013. In fact, it was raised in February 2016 to $18,800 pesos p/month for singles and $25,000 for a family.