The relationship between Javier Milei and the governors is currently going through its worst moment. The setback due to the Omnibus Law and the elimination of the Interior Compensation Fund showed a discontent that had already been looming since the Government warned that its fiscal adjustment plan implied a significant cut in the transfers that the Nation sends to the provinces.
But beyond the suspension of this particular fund, the decision opened a series of questions about which transfers could be suppressed. Or in other words, where the Government's scalpel could go and whether it would actually be enough to achieve its objectives.
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At first glance, the transfers made by the Nation to the provinces could be summarized in two: automatic ones and discretionary calls. The first are those that arise from laws that set a percentage of a national tax and it is distributed among the provinces. The most important is the system that is governed by the Co-participation Law 23,548 and then other taxes appear that share its resources, among which are, for example, the Income Tax, VAT or fuel taxes.
The president, Javier Milei, in a meeting with governors in Casa Rosada (Photo: NA).
Meanwhile, discretionary transfers can be current (to finance daily expenses) or capital (linked to investment expenses, works or purchases of goods). In turn, for current shipments there are a series of programs that, according to a report by the Mediterranean Foundation and IERAL, represent close to 80% of this type of transfers to the provinces.
Specifically, these programs are:
The National Teacher Incentive Fund, The Fiscal Strengthening Fund of the Province of Buenos Aires, The program of relations with the provinces and regional development, which includes Contributions from the National Treasury (ATN)
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Transfers to Provincial Pension FundsFinancial Assistance to ProvincesFunds from the regulations of Law 27,606 (which refers to the transfer of the Police to CABA)Other current transfers
The limits of the Government to adjust the provinces
However, the plan to adjust expenses to the Government's provinces has certain limits. “Automatic transfers such as co-participation cannot be touched because the law would have to be changed and other transfers such as fuel transfers could not be cut, for example,” explained Marcelo Capello, economist at IERAL.
Meanwhile, he described that although discretionary shipments could be reduced, that determination would leave several conflicts at the door for the Nation. “The Government could not distribute the funds for some programs, for example, the Fiscal Strengthening Fund of the province of Buenos Aires, but it sparks a conflict with that province. There are also signed agreements that sometimes the Nation did not respect and did not send the money, and lawsuits such as that of Córdoba to the ANSES can be generated. In the short term these cuts were made, but in the long term Justice may rule against it.”
Furthermore, these transfers are supported by a framework, so not all programs can be cut short either. “Just because they are discretionary does not mean that the Executive can automatically stop providing them because in many cases they are associated with laws, regulations, agreements or even international loans through which the Nation distributes those resources. In many cases there is a rule or an agreement behind that makes it difficult to eliminate them with a stroke of a pen,” summarized Rafael Flores, economist at the Argentine Association of Budget and Public Financial Administration (ASAP).
Can the Government meet its fiscal goal with the adjustment to the provinces?
The next concern is whether the dispute over the funds that the Nation sends to the provinces is enough for the Government to achieve its fiscal plan, which according to the roadmap it presented to the IMF, represents a surplus of 2% of GDP. and results in a five-point adjustment of the product.
According to different private estimates, the pruning of transfers to the provinces is around one point of the product, which would add to the general objective of the national Executive, but it would not serve to comply with the plans in their entirety and the Government would need other means. adjustment, that is, greater cuts -for example, in subsidies- or tax updates to improve collection.
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Just as an example, IERAL calculated that in January the Nation sent only $200 million in non-automatic transfers, which is practically bringing them to zero, and if it continues along that path, the Executive would save a figure equivalent to 1.1% of GDP .
“As soon as Javier Milei's government began, a cut of 0.5% of GDP was announced in terms of Current Transfers to the provinces, which represents a cut of approximately 70% compared to 2023, and another cut of at least that is inferred. proportion for Capital Transfers to provinces, given that national capital spending would also drastically decrease this year,” IERAL indicated.