The Ministry of Economy (REUTERS / Agustin Marcarian)
The Ministry of Economy (REUTERS / Agustin Marcarian)

In recent years, the Argentine economy has suffered from serious chronic inflation, generated mainly by the fiscal deficit. Public spending should strike a balance between the taxes paid by its citizens and the level of services they receive in compensation. In Argentina, it includes the payment of salaries to public employees, which in volume have grown 33% in the last 10 years. In turn, it implies the financing of social programs that in many cases have grown more than public employment. For its part, public spending implies resources for health in a country that many used for Private Social Work or Prepaid that today is difficult for them to pay and end up requiring the public hospital. Education where the middle class went from public to private school and security where Argentines pay for it privately or change their living habits or place to avoid being part of a criminal act. It is also allocated to the construction and maintenance of infrastructures such as roads, bridges and public buildings and to investment in research and development.

At the end of 2022, according to the Ministry of Economy, the deficit rose to 3.4 percent. That is to say, he spent more. If we only refer to the primary fiscal deficit, we will see that this is equivalent to 2.4% of GDP. This last figure is encouraging for the IMF since it would have been over fulfilled. The goal was 2.5% of GDP at the end of 2022. By 2023 the deficit should close at 1.9% of GDP. These goals are complex to meet this year, not only because variables such as international reserves, exchange rates, interest rates, among others, are still distorted, but also because the adjustment must come not only from the national level, but also from each province within the scope of its fiscal responsibility.

At the end of 2022, according to the Ministry of Economy, the deficit rose to 3.4 percent. That is to say, he spent more

Public spending has negative effects if it is not properly managed. Excessive or inefficient spending leads to chronic fiscal deficits and debt. This has negative consequences for the country’s economic growth, private investment, inflation and financial stability, among other ills.

One of the variables to evaluate for public spending is its relationship with the GDP (Gross Geographical Product in the provinces). Since 2004 there have been cumulative increases in their Public Expenditure at constant prices until 2022 in provinces such as Santiago del Estero (101.5%), Tucumán (71.2%), Chaco (88.4%), Jujuy (68.3%) ) and Formosa (71.9%) according to the Ieral. It is to be expected that if production increases the expenses of the provinces should be in relation to these values ​​to reach a balance. However, in the last 18 years while production increases “arithmetically”, expenses increase “geometrically”.

In 19 of 23 provinces they do not know what fiscal responsibility is. In the province of Santa Fe, while its GDP increased a little more than 50% between 2004 and 2022, its accumulated public spending was more than 120%, in Chaco its accumulated GDP was 88% and spending accumulated an increase of 117 %, San Juan with an accumulated GDP of 59% increased its public spending by more than 106%. In other words, provinces where their level of spending grows above their economy are not self-sufficient, which is why they request extra income from the Nation, increasing the fiscal deficit and the tax pressure on all the inhabitants of the country. In the case of Catamarca, its GDP not only did not increase, but decreased by -4%, however, its public spending increased by more than 90%. In other words, the contribution of this province was not only nil over time, but the need for national resources and those of other provinces is not only a priority for its subsistence, but urgent to face the level of spending.

Source: Ieral
Source: Ieral

During the last 18 years, the provinces found themselves on average spending much more than what they received. For its part, the level of spending should be related to the growth of its population in the same period. To take as an example the population in all the provinces in the last 18 years grew an average of 20.9%. However, in Buenos Aires while its population grew 20.9% and its product 52.2%, its real public spending advanced by 84.9%. In the case of Catamarca, its population grew 20.1%, its product fell 4% and its real public spending 90.5%. In Chaco, the population grew 12.5%, the product 88.4% and the expense 117%. The City of Buenos Aires is the one that presented the lowest demographic growth in the period, with 9.2%; a product in 57.1% and an expense 98.1%.

In 19 of 23 provinces they do not know what fiscal responsibility is

In order to evaluate a fiscal improvement, it is important to take into account which are the provinces that currently have high levels of expenses in relation to their inhabitants. In 2022, the highest public spending per inhabitant –with data for the 3rd quarter– is held by Tierra del Fuego with $496,352 per inhabitant. Santa Cruz follows, with $465,570, and Neuquén, with $451,930.

However, what is important, as we make clear in this note, is to evaluate the level of public spending, not only gross, but also in relation to how much the economy of that territory and its population have grown. Unfortunately seen in a longer period of time, most of the provinces do not close their accounts, transferring this problem to their citizens with more and worse taxes, more inflation deteriorating the private sector, investment and employment in our country.

Source: Focus Market
Source: Focus Market

Any discretionary decision in bad. The National State has decided in the last two decades to transfer resources from the Nation to the Provinces, causing them to close the accounts but causing them to lose those of the population. Each additional peso to finance the fiscal deficit has been paid for with more taxes, more public debt, and more inflation. All elements combined constantly over time. The population as part of that expense would have required administration and efficiency in its use in better health, education, security and infrastructure. However, it has been used to increase public employment and social plans.

Throughout these 2 decades, all the governments asked for mercy and a little more effort from all the inhabitants and a little more still from certain sectors of the middle and upper class. However, the fiscal accounts were never resolved and the accounts of the inhabitants worsened over time for all social classes. The promises of a solution did not arrive and the problems intensified. The American economist Milton Friedman expressed “Nothing is as permanent as a temporary government program”. That is what has happened in the last 2 decades and what we reflect with data in this note. Hopefully nothing is more temporary than this note and that from now on the fiscal accounts improve, public spending decreases and becomes more efficient, the tax burden decreases, investment and private employment grow.

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