Last Sunday, in a speech transmitted to TV stations all over the country, President Javier Milei explained the basics of the 2025 budget bill he aims to pass in Congress. The main takeaway from the proposed budget was the “Unbreakable Fiscal Rule” — the idea that the administration must cover debt interests before allocating further spending.
Current projections show that Argentina’s debt interests will amount to 1.5% of the GDP in 2025, meaning that, as per the new rule, the administration would need to gain a corresponding surplus. Moreover, if the economy continues to contract, the bill would grant the administration higher discretionary power to cut costs to achieve “zero deficit.”
“If the macroeconomic scenario deviates from the presented projection, discretionary spending will be adjusted to ensure financial balance or fiscal savings will be increased,” the bill says.
While many welcome the idea of fiscal discipline, there are concerns surrounding transparency, and the effects of further austerity, while economists have warned of inconsistencies in the budget proposal.
According to Guido Rangugni, vice president of the Argentine Association of Budgets and Public Administration (ASAP, by its Spanish acronym) the new rule is “good news.” “Gaining fiscal discipline is non-negotiable if you aim to obtain macroeconomic balance,” he told the Herald.
However, he added that the rule has a pro-cyclical element. “If there is a recession and resources start to fall, what it establishes is that expenditures must fall rapidly,” he said. According to Rangugni, that could accelerate the current recession. “Usually we always talk about the convenience of having a countercyclical fund to be able to compensate for this type of situation,” he added.
He added that the fiscal rule is “an article of a law” and due to the legal design, it could be struck down with a simple majority in Congress. “It is not an unbreakable rule from a legal normative point of view,” he said.
Economist and journalist Ismael Bermúdez told the Herald that the fact that “everything is conditioned to the debt interests” could be risky for the country’s most vulnerable sectors.
“They are saying ‘If, in order to pay the interest on the debt we have further to cut retirement pensions, medicines for retirees, universities — well, we are going to cut them’,” he told the Herald. “It is completely inverted.” He said that the bill gives the Executive Branch a great deal of room to operate without being held accountable.
“If the Congress votes for this, it can be said that it is of no importance whatsoever what they vote from that moment on because due to the economic emergency [declared in the Ley Bases] and the discretionary nature of the budget bill itself, it may or may not be complied with,” he said.
Bermúdez added that if the government has a surplus greater than 1.5% of the GDP, the government is “authorized to lower taxes” and not to spend more money. “And lowering taxes, according to the government’s tax scheme, means lowering taxes for the most favored sectors to the detriment of the least favored sectors,” he said.
A report by the Epyca consultancy said that the amount the government hopes to collect with the monotributo, a tax paid by self-employed workers, would triple from 2024 to 2025. Bermúdez added that the project cuts down on the Personal Property tax, paid by people who declare assets of more than AR$100 million. He said there will be an “income transfer” from workers to people with more assets.
According to the think tank Centre of Argentine Political Economy (CEPA, by its Spanish acronym), the bill reduces the Health Ministry budget by 18.2% in 2025 compared to 2024, the budget allocated to Education and Culture by 1% (although it is 44% less than 2023). The budget for the CONICET, the country’s main scientific investigation agency, will be slashed by 18.3% when compared to 2024 and by 39.7% with respect to 2023. Moreover, the allocation for pensions increased by 3.2% with respect to 2024 but is 10.1% below 2023.
However, some allocations are increasing. For example, even if the Senate struck down a presidential decree granting US$100 million to intelligence services, the budget proposal would virtually restore it, as it intends to sanction by law the disbursement of AR$197 billion to the agency. This would almost quadruple its weight in the national public administration expenditures: from 0.04% in 2023 to 0.17% in 2025.
The Herald spoke to sources within Unión por la Patria, which is planning on rejecting the budget, and the UCR, which said it is “analyzing” it. The PRO aims to discuss some minor issues, but welcomed the “unbreakable fiscal rule.”