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To Reduce Deficit, Government Introduces New Export Taxes

The agricultural sector has already voiced its displeasure at the move.

By | [email protected] | September 4, 2018 2:03pm

(Photo via Mercopress).

Gradualism has definitively come to an end. As part of emergency moves aimed at stabilising the peso and calming the markets, the Argentine Government has introduced dramatic measures that they hope will slash the mounting fiscal deficit. After first announcing the closure of 10 government ministries, the Macri administration has now increased taxes on exports in an effort to stabilize Argentina’s economy.

This decision forms part of an austerity program announced by the Government after their actions and those of the Argentine Central Bank (BCRA) failed to bring Argentina’s spiraling currency under control last week. On Thursday, the BCRA hiked interest rates up by 60 percent and President Macri gave a speech aimed at calming the markets, but neither had the desired effect, with the greenback reaching AR $40 for the first time in history.

The government is now introducing a so-called “deficit zero” plan which intends to bring Argentina’s currency under control and balance the country’s books by 2019, the year of the next Presidential elections. The new plan is based both on reducing spending and half on increasing national revenue, aiming to slash slashing public spending by US $11.7 billion by 2020.

President Mauricio Macri announced the new export taxes in a speech on Monday. (Photo via Brecorder).

Aside from cuts to public services, a key element of the scheme is to increase export revenue by raising taxes. In a televised statement on Monday, President Macri said, “to start building the country we want, we have to balance our accounts with a state that spends less than what it receives.”

As part of this book-balancing mission, Macri said that the Government would ask more of exporters because they had benefited from the devaluation and have “more capacity to contribute.” He admitted that although this was a “bad, very bad tax when what you want are more exports to generate jobs,” it was necessary because this is an “emergency” and Argentina needs exporters’ contributions.

At a press conference on Monday, Economy Minister Nicolás Dujovne said that Argentina would now be imposing an AR $4 tax on each dollar of primary exports and services as well as an additional AR $3 on other exports until 2020. With this measure, the Government expects an additional income equivalent to AR $68 billion this year (US $1.7 billion, 0.5 percent of GDP) and AR $280 billion (US $7.1 billion, 1.5 percent of GDP) in 2019.

El Mesa del Enlace. (Photo via El Intra).

The Agricultural sector has already pushed back against the measure, which it considers to be yet another pressure on farmers who suffered a dismal harvest this year due to severe drought. Speaking today, the Mesa del Enlace said that they had “not been consulted” by the government before this action was announced.

The Mesa del Enlace is an organization that unites the four primary agriculture and livestock companies in Argentina – the Argentine Rural Society (SRA) the Argentine Agrarian Federation (FAA), the Argentine Rural Confederations (CRA) and CONINAGRO. The organization criticized these new taxes, saying that they are a direct contradiction of promises made to them by Macri in July. They say that he promised that he would maintain the soybean tax reduction scheme and that taxes would not be levied on other export crops, such as wheat or corn.

Previously, the agriculture industry and soybean producers in particular had benefited from reduced export taxes under Macri, as part of his campaign promise to remove export duties on soy and wheat. However, given the failure of gradualism and the move to austerity measures, this promise is no longer sustainable.

In a statement, the SRA said “there should be more comprehensive tools to achieve the generation of fiscal resources, including all economic sectors. The boost to production is the solution that Argentina needs in the context of the exchange-rate emergency that has been dragging us down for months,” while Omar Príncipe, President of the FAA, said “Once again small and medium-size producers are being condemned, without being differentiated [from large-scale producers], to pay more to support financial gambling and the IMF.”

Speaking to Infobae, Dardo Chiesa, President of CRA, said that the most serious problem was that they had not been warned about the measure. “They did not consult us at all and only warned us when it was already completed,” he said. “The measures will discourage investment.”

Dante Sica. (Photo via Agrolink Web).

The Government has fought back against these allegations, saying that this measure was a last resort. Dante Sica is Minister of Production, a ministry that will now absorb the Work and Agroindustry ministries as part of austerity measures introduced on Monday. Speaking to Clarín, he said that these new measures would allow greater synergy throughout the production chain.

“We are meeting [with the agriculture industry] and explaining that this was the last thing that we wanted. It is an exceptional measure, taken because of the emergency, and it has an expiration date set for December 2020. We did not want to take this measure, resorting to export duties is almost a defeat,” he said. “Our vision is set on correcting imbalances and without an orderly economy, there is no way to work. The priority is stabilization.”