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Is a new wealth tax coming when Congress reopens?

A Kirchnerite initiative for a one-time tax on the country's richest people

By | [email protected] | April 30, 2020 4:22pm

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Argentine politics are heating back up. After weeks in which President Fernández comfortably dominated the scene through his reaction to the COVID-19 emergency, the growing economic crisis, the dismissal of social security chief Alejandro Vanoli yesterday and the emerging prison riots crisis mean hot issues are growing by the day.

In such a rapidly changing scenario, government priorities can shift with short notice, but at the moment one initiative is making progress and moving closer to approval: a one-time, emergency tax on the country’s wealthiest to plug part of the financial hole caused by the coronavirus crisis.

The government has been preparing the ground to vote on a bill that asks for an exceptional contribution from the country’s 12,000 richest people. Although the proceeds from the tax will not suffice to cover the healthcare and economic aid costs linked to the pandemic in full (with the government already ramping up money printing to assist provinces, businesses and hospitals), the bill has political significance due to relatively broad support among the general population and the fact that it was initiated by allies of former president and current VP Cristina Fernández de Kirchner.

A Kirchnerite initiative

The leader of the ruling Frente de Todos caucus at the Lower House and eldest son of the Vice President, Máximo Kirchner, along with Congressmen Carlos Heller and Hugo Yasky, started working on that initiative from the beginning of April. Both Heller and Yasky represent the most left-leaning sectors within the government coalition. Heller is the president of the cooperative bank Credicoop, while Yasky leads the CTA umbrella union.

At first, the bill appeared to be supported by the core Kirchnerites alone. But President Fernández ended up green-lighting the initiative after a meeting at the Olivos presidential residence on April 14th with Kirchner, Heller and Economy Minister Martín Guzmán. The bill now gained additional momentum after a Supreme Court ruling that paved the way for virtual sessions in Congress.

Although the final details of the initiative are still unknown, Heller told La Nación that the one-time tax would reach 12,000 people with a net worth of more than 200 million pesos. This group would be taxed for a total of 2% of their assets. That percentage could rise to 3.5% in the case of those whose fortunes exceed 3 billion pesos.

According to Heller, with this one-time tax the government could collect between 200 and 220 billion pesos (almost 3 billion dollars), which would be used to cover the health expenses caused by the covid-19 pandemic and to help small and medium enterprises.

Past battles with the courts

On the same day of the meeting in Olivos, Fernández de Kirchner filed a request for the Supreme Court to decide whether the Senate could hold virtual sessions, given the danger of contagion among lawmakers.

Analysts argued that Fernández de Kirchner’s move stemmed from fear that the courts might block the new tax after it’s approved by Congress, similarly to what took place with several of her initiatives during the 2011-2015 presidential period.

Graciana Peñafort, the Senate’s director of legal affairs as well as a former legal representative of Fernández de Kirchner, was in charge of making the filing to the highest court. Peñafort is a young lawyer who was the voice of the state at the public hearing on the so-called media law in 2013, in which the country’s largest media group, Clarín, challenged Fernández de Kirchner’s media regulation before the Supreme Court.

In her brief, Peñafort said that the Senate needed certainties before opening the floor to discussion, as the initiative would trigger all kinds of challenges and resistance from the most powerful people in the country given that it directly affects them.

A partial legal victory

The president of the Supreme Court, Carlos Rosenkrantz, said that the issue could be dealt with as an exception during the current lockdown recess, in effect since March 20, and asked acting Attorney General Eduardo Casal for his opinion on the matter. Casal said there was no case to discuss and argued the debate on how to proceed with congressional sessions did not belong to the Court’s jurisdiction. Although Fernández de Kirchner’s presentation was ultimately rejected, all Supreme Court members with the exception of Rosenkrantz agreed that the Senate can decide on its own procedural rules and sit remotely.

Fernández de Kirchner took it as a great political victory. The court’s decision was also praised by President Alberto Fernández, who said that the ruling showed “great legal intelligence.” “There was a risk that the law would be declared null and void, so Cristina’s proposal was absolutely logical,” the President told El Destape Radio.

“This does not mean that the law will not be challenged in court later,” a source at the high court told The Essential. “This is far from over”, the source added.

During her two terms, Fernández de Kirchner had a fluctuating relationship with the highest court, which deteriorated especially during her last two years in office after the Supreme Court declared the judicial reform promoted by the then president unconstitutional. Fernández de Kirchner also failed to appoint a replacement for Raúl Zaffaroni, the justice who left the Court in December 2014 and was her closest ally in the tribunal. Zaffaroni’s successor ended up being appointed by her center-right successor Mauricio Macri, although by the end of Macri’s term his party argued that it had lost influence over the Supreme Court.

Ongoing negotiations

Macri’s coalition, Juntos por el Cambio, submitted a counterproposal on the tax law last week. Senator Roberto Basualdo filed a bill so that those who have assets totalling more than 200 million pesos would have to set aside 2.5 percent of that sum for “productive investments”.

Unlike the Frente de Todos proposal, Juntos por el Cambio is looking to mandate one-time investments instead of simply setting the money aside as a new tax.

The counterproposal was presented amid protests from a group of opposition congressmen who travelled to Congress to demand it be re-opened, calling for a limit to President Alberto Fernández’s power during the emergency. Former Vice President Gabriela Michetti shared on Twitter a video showing them traveling to Buenos Aires on what was called a “patriotic journey.”

On Tuesday, Fernández de Kirchner met the heads of the two most important Senate caucuses in her congressional office: José Mayans (Frente de Todos) and Luis Naidenoff (Unión Cívica Radical – Juntos por el Cambio), looking to strike a deal on how to proceed with the tax and the virtual sessions.

The Vice-President said senators could connect virtually from their provinces while she is present in the chamber. The opposition called for a “mixed” session, in which some senators could sit in the chamber while others dial in from their provinces. Lower House Speaker Sergio Massa is expected to follow those same guidelines.

Tests ahead

The Senate – where the ruling coalition holds 41 of the 72 seats – could have its first virtual meeting on May 6, when Fernández’s emergency decrees, signed since the World Health Organization declared the pandemic, will be up for congressional revision. That would be the baptism of fire for the new modus operandi of Congress.

If it continues to move forward, the treatment of the one-time tax could come after May 10. But sources close to the government are cautious. They see Fernández’s administration as currently under fire due to prison conflicts and allegations that some criminals might be sent home during the pandemic. The media onslaught on that matter, the government believes, could gain pace during the coming days, and might be linked to the destiny of the wealth tax. The ending of this conflict is still unwritten.