Tuesday
September 19, 2017
Friday, May 12, 2017

Indelible red ink

The sweeping breach of contract inflicted by PAMI healthcare scheme for the retired on its pharmaceutical suppliers is symptomatic of the extreme difficulties faced by the Mauricio Macri administration in tackling its bulging fiscal deficit. While from a technical standpoint it might be possible to make some savings to trim PAMI’s 900-million-peso deficit (the pharmaceutical companies have never been innocent of trying to make some easy money at state expense), denying the elderly their medication conveys the worst possible electoral image, negating the “Historic Reparation” which was named as the objective of the tax whitewash. After some weeks of highlighting that the state payroll grew from 2.2 to 3.5 million as from 2003 and thus implying that it might be cut down to size, the government seems to have despaired of any such streamlining as either politically or socially possible, turning their attention to the PAMI budget, but it will take rather more than an arbitrary breach of contract to justify cuts here.

If April’s revenue haul (the first this year without major aid from the tax whitewash) rose by almost 25 percent while public spending in the first quarter of this electoral year climbed by 35 percent, the fiscal deficit can only continue to spiral out of control with current policies — if there were hopes at the start of the year that a growing economy could reduce the deficit’s percentage of gross domestic product without cuts, the growth forecasts have been steadily falling since. Whitewash windfalls might give this year’s target figure of 4.2 percent of GDP for the fiscal deficit a chance of being met but next year’s is 3.2 percent. With the state expanding 25 percent under the Macri presidency according to an orthodox thinktank report last month and with pensions and most social spending index-linked, it is hard to see from where major savings would come apart from the total elimination of utility bill and transport subsidies. Since major cuts in either spending or taxation (apart from export duties) have so far proved impossible, the government has resorted to debt to finance the deficit but the resultant dollar influx has only distorted the exchange rate, compounding the productive sector’s competitive problems along with the tax burden and a rigid monetarism which is needed to tame inflation at these levels of deficit.

At the start of the year the experts were unanimous that the economy would grow (if only by comparison with a recessive 2016) but as things now stand, the best bet for growth is looking like the fiscal deficit.

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