Photo via Ambito

The Macri administration is with most of the world on the fact that it probably can’t wait for 2016 to be over. In what was the congressional year’s last major debate, the government suffered its largest political defeat to date after the opposition managed to come together and impose its own joint project to reform the income tax.

Due to the extreme fiscal cost it represents — an AR $65 billion a year instead of the government’s projected (and preferred) AR $32 billion annual cost — representatives from the Macri administration accused the opposition of basically wanting to drive them bankrupt with populist measures. In a press conference in the Mendoza province today, President Macri joined the criticism from his party’s lawmakers in saying that “the irresponsibility we saw yesterday is not the way… They are proposing solutions that produce more poverty.”

The opposition denies it. The argument is that they’re helping both the administration and the workers with the project and that there are ways to replace the revenue, such as taxing mining activity, the financial sector and gambling.

The outcome could already be seen by 6 PM yesterday after leaders from these opposing parties held a press conference announcing that rather than presenting their own proposal — which would have led to an endless, probably unfruitful debate — they would all rally behind a single one they had agreed on.

This project ended up being approved late at night by 140 votes in favor, 86 against — and seven abstentions and will introduce the following changes.

  • The income tax floor will increase by 40 percent: the tax floor for single people’s net salaries would go from AR $18,800 to AR $27,700, while for workers with at least two kids will go from AR $25,000 to AR $36,300. The government’s proposal would have increased the floor by 15 percent.
  • Except for those reached by the highest scale of the tribute, workers won’t have to pay tax on travelling expenses, productivity bonuses and the aguinaldo: an extra half salary workers get every June and December, in accordance with Argentine labor law.
  • Those who rent a single property to live won’t have to pay the tax on the rent if the total annual value is lower than AR $66,000 (a bit more than AR $6,000 a month).
  • There will be an automatic adjustment of the tax floor so only the wealthiest 10 percent of the population pays it.
  • Retirees who earn pensions lower than AR $60,000 won’t pay the tax either.
  • Judiciary Branch workers don’t pay the income tax. The proposal would tax new judges, leaving the other employees of the hook. This means that judges appointed as of January 1, 2017 will be taxed on their salaries.
  • Unfavorable area: the tax floor will be raised even more — 45 percent — for workers located south of the Colorado river, meaning all provinces from La Pampa down.

How would the fiscal hole be covered?

  • Reinstating the 5 percent tax on mining activity. The Macri administration had been eliminated the tax when taking office as a way of attracting investment and boost activity.
  • Tax the gambling industry: online bets would pay a 7.5 percent tax while coin slots would have pay a 10 percent one. This is a historic demand from several sectors of society because the industry hasn’t paid taxes for decades.
  • Tax financial profit: short interest fixed term bonds and treasury notes higher than AR $1.5 million will be taxed as well.

Should the project become a law (it will be now discussed in the Senate), a million workers would stop paying the income tax. Let’s also recall that a third of workers in the Argentine economy are en Negro, or unregistered.

Carrying out this much needed reform was supposed to be a victory for the Macri administration, allowing it to begin the electoral year on a high note. It had been one of its most important rallying cries during the campaign and a strong demand from unions throughout the years. After all, its scales and, except for some small increases, the tax floor hadn’t been modified for over a decade, thus charging workers on an income that places them in the middle class as if they belonged to the wealthiest sectors of society.

However, in just a matter of hours the whole thing turned into a defeat putting the government between a rock and a hard place: if the bill finally becomes a law, the narrative could read that the opposition was the party that looked out for the worker’s best interests. If it gets stuck in the Senate it would be because the government pressured governors into influencing the Senators from their provinces. After all, Macri also said today he hopes the Upper house “puts an end to the demagoguery.” And if it dies under the presidential veto it will the be Macri looking like he’s against seeing more money in the workers’ pockets directly.

It is precisely because of the timing that government representatives accused opposition members — specially the Victory Front’s — of hypocrisy. During 12 years in office they refused to touch this source of income but the moment they can pin the fiscal cost on another administration they rush to push the measure in order to capitalize it politically.

“They want to bring down the national government, de-financing the state and the provinces with a reform they didn’t do for 12 years,” said the President of the state budget’s Special Committee, Deputy Luciano Laspina. “There’s no coherence between what they said before and do now,” he added.

In contrast, former Economy Minister under the Kirchner administration Axel Kiciloff said their initiative doesn’t drill a hole in the government’s coffers and questioned the fact that “today they don’t tax the richest sectors but when the workers come they say ‘there’s not enough money.”

“What we did is perfectly coherent with what we did when we were government and what we said during the campaign,” he added.

Photo via La Noticia Web Ciudad
Photo via La Noticia Web Ciudad

On his end, Renewal Front (FR) leader Sergio Massa, Arguably a person who benefited the most by this victory, said that “discussing this as a political matter is a mistake… It’s the answer to the demands from a lot of people sick of seeing how this tax takes a month of work off of the job they do during the year.”

The importance of the opposition’s maneuvers also transcend the session and this particular project, regardless of its importance: it undoubtedly marks the beginning of the campaign for next year’s key mid-term elections. Far away are the ties when the FR and the Justicialist Party (PJ) presented themselves as a consensus-prone opposition that would make it easier for the government to pass laws. The FpV doesn’t really count because it has always been against all things Macri administration and will always be.

As the moment to go to the polls gets closer in time, the government will increasingly have more problems to articulate a majority in Congress while at the same time the opposition will seek to seize every opportunity to get victories that will translate into votes in the elections. The income tax was the first battle, and surely there are many more in store for next year. It will be an intense campaign and Congress will play a central role in it.