Photo via El Economista

Money money money. We’re about to talk a whole lot about money. Who has the money? Well, according to a recent study published by IARAF, – the Argentine Institute of Fiscal Analysis – not the Argentine provincial administrations. The study reported that most provinces do no even generate a third of the money they are spending. In fact, the income of 14 of the 24 provinces support, at most, only 31% of their total annual spending. So, in order to function on a daily basis, the majority of the country relies heavily on national funds to meet their needs.

In other words, the Casa Rosada covers more than two thirds of most provinces’ annual expenses.

That’s a lot of money.

The provinces have two ways of getting money from the federal government: a determinate percentage of its tax revenue that they all get, based on criteria such as size and population, and funds that the state can administer at will. A group of provinces have already demanded the government increase this percentage — and even succeeded in getting the Supreme Court to side with their claim — but since this is a slower process, their focus is on getting the Macri administration to open up the wallet. Because if it doesn’t, it will be in trouble.

The perfect example of this dependence was illustrated by the critic situation the Santa Cruz Province went through – and is still going through, only to a lesser extent – throughout the year. The Alicia Kirchner administration (sister of late President Néstor and sister-in-law of Cristina Fernández) was in such dire straits that it couldn’t pay the salaries of its public workers nor offer them a reasonable salary increase for the year, taking inflation into account.

This created a massive conflict that extended throughout months. In the perhaps most clear example, the province’s public school teacher were on strike during the half of the school year, and only ended it when the national government gave the provincial administration the funds it needed, in exchange for fiscal reforms aimed at taking steps towards normalizing its economic situation.

So, how is it looking for 2017?

Percentage of revenue through provincial taxes vs. percentage of provincial income of the total. Source: Instituto de Análisis Fiscal (Iaraf)/ La Nacion
Percentage of revenue through provincial taxes vs. percentage of provincial income of the total. Sources listed

Lets break this graph down. As IARAF determined, the most dependent provinces are Formosa, La Rioja and Santiago del Estero. In Formosa, the provincial revenues account for barely 9% of the districts total spending, while in La Rioja they are 10% and Santiago just beats them out with 12%.

Following close by are Jujuy and Chaco which halt at 14%, Corrientes comes to 16% and Catamarca tops at 18%. Another five provinces exceed 20% of their own money reserves which are: San Luis (21%), Salta (23%), Entre Rios and Misiones (27%), and finally Tucumán (29%).

In the middle of it all, are San Juan, which produces 30% of its resources and La Pampa, which climbs just above 31% in producing its own revenues.

On the other side of the spectrum, the most economically autonomous districts are Buenos Aires, Neuquén, Chubut, Santa Cruz, Mendoza, Tierra del Fuego, Córdoba, Río Negro and Santa Fe.

According to the director of IARAF, Nadin Argañaraz, “In any federal country in the world, the tax structure has a redistributive component, whereby the richer regions help the poorest, and another returns, therefore each district receives resources according to what it collects. The key is to find intermediate points between both elements which is key to making four fiscal reforms in Argentina.”

What are these four fiscal reforms? An economist and formerly the Undersecretary of Development in charge of the analysis of governmental tax reform detailed the “essential” changes he believes should be implemented this upcoming year as “national tax reforms, a reform of the law of co-participation that… contemplating changes in the distribution of subsidies, the law of fiscal responsibility, and a provincial tax reform.” The national and provincial government have their work cut out for them.

The study’s results have sparked a fair amount of discussion. In the past few months, a debate has gradually formed over the distribution of taxes between the Casa Rosada and the provincial governors. According to Walter Agosto, principal investigator CIPPEC, a key factor to solving this disparity is for the provinces to improve their income, stating that “Provinces find it more comfortable to increase spending without assuming the political cost of increasing their own taxes. Giving more tax power to provincial governments would limit their idea of being generous with other people’s money.”

This “map of dependency” of the provinces will play a big role in the political discussions President Macri will face after the upcoming October elections surrounding the distribution of the budget and taxes.