The Ministry of the Economy (REUTERS / Agustin Marcarian)

In recent years, the Argentine economy has suffered from severe chronic inflation, generated mainly by the budget deficit. Public spending must strike a balance between the taxes paid by its citizens and the level of services they receive in return. In Argentina, it includes the payment of salaries to public employees, the volume of which has increased by 33% in the last 10 years. In turn, this involves the funding of social programs, which in many cases have increased more than public employment. For their part, public expenditure involves resources for health in a country that many used for private or prepaid social work that today is difficult for them to pay and which ends up requiring the public hospital. Education where the middle class moved from public school to private school and security where Argentines pay privately or change their lifestyle or location to avoid being part of a criminal act. It is also allocated to the construction and maintenance of infrastructure such as roads, bridges and public buildings as well as to investments in research and development.

At the end of 2022, according to the Ministry of the Economy, the deficit stood at 3.4%. That is, he spent more. If we only refer to the primary public 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 exceeded. The target was 2.5% of GDP at the end of 2022. By 2023, the deficit is expected to close at 1.9% of GDP. These objectives are complex to achieve 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 at the national level, but also from each province. as part of its fiscal responsibility.

At the end of 2022, according to the Ministry of the Economy, the deficit stood at 3.4%. That is, he spent more

Public expenditure has negative effects if it is not properly managed. Excessive or inefficient spending leads to chronic budget 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 be evaluated for public expenditure 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 general. It is to be expected that if production increases, the expenditures of the provinces will be in relation to these values ​​in order to reach a balance. However, over the past 18 years, as production increases “arithmetically”, expenditure increases “geometrically”.

In 19 of the 23 provinces, they don’t know what fiscal responsibility is. In the province of Santa Fe, while its GDP increased by just over 50% between 2004 and 2022, its cumulative public expenditure was over 120%, in the Chaco its cumulative GDP was 88% and expenditure cumulative increased by 117%, San Juan with a cumulative GDP of 59% increased its public expenditure by more than 106%. In other words, the provinces where their level of expenditure grows above their economy are not self-sufficient, which is why they demand additional revenues from the Nation, increasing the fiscal deficit and the fiscal pressure on all inhabitants. from the country. In the case of Catamarca, not only did its GDP not increase, but decrease by -4%, but its public expenditure increased by more than 90%. In other words, the contribution of this province has not only been nil over time, but the need for national resources and those of the other provinces is not only a priority for its subsistence, but urgent to meet the level of expenditure.

Source: general
Source: general

Over the past 18 years, provinces have found themselves, on average, spending much more than they received. For its part, the level of its expenditure should be linked to the growth of its population during the same period. For example, the population of all provinces over the past 18 years has increased by an average of 20.9%. Now, in Buenos Aires, while its population has increased by 20.9% and its product by 52.2%, its real public expenditure has increased by 84.9%. In the case of Catamarca, its population increased by 20.1%, its product fell by 4% and its real public expenditure by 90.5%. In the Chaco, the population increased by 12.5%, the product by 88.4% and the expenditure by 117%. The city of Buenos Aires is the one which presented the weakest demographic growth of the period, with 9.2%; a product at 57.1% and an expense at 98.1%.

In 19 out of 23 provinces they don’t know what fiscal responsibility is

In order to assess a tax improvement, it is important to consider which provinces currently have high levels of spending relative to their inhabitants. In 2022, the highest public expenditure per capita – with data for the 3rd quarter – is held by Tierra del Fuego with $496,352 per capita. 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 expenditure, not only gross, but also in relation to the growth of the economy of this territory and its population. Unfortunately seen over a longer period of time, most provinces do not close their accounts, passing this problem on to their citizens with increasingly bad taxes, more inflation deteriorating the private sector, investment and employment in our country.

Source: Focus Market
Source: Focus Market

Any discretionary decision in wrong. The National State has decided over the last two decades to transfer resources from the Nation to the Provinces, causing them to close their accounts but losing those of the population. Every extra peso to finance the budget deficit has been paid for with more taxes, more public debt and more inflation. All elements combined constantly over time. The population, within the framework of this expenditure, would have needed administration and efficiency in its use to improve health, education, security and infrastructure. However, it was used to increase public employment and social plans.

Throughout these 2 decades, all governments have asked for mercy and a little more effort from all the inhabitants and a little more from certain sectors of the middle and upper class. However, the tax accounts were never settled and the residents’ accounts deteriorated over time for all social classes. Promises of a solution did not arrive and the problems escalated. American economist Milton Friedman said, “Nothing is as permanent as a temporary government program.” This is what has happened over the last 2 decades and what we reflect with the data in this note. Let’s hope that nothing is more temporary than this note and that from now on the budgetary accounts will improve, public spending will decrease and become more efficient, tax pressure will decrease, investment and private employment will increase.

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