The ruling favored Larreta but the provinces may also be the final beneficiaries

The Supreme Court ruling tried to aim at the middle. To be fair like Solomon. Obviously, the national government believes the top court’s ruling, which grants an injunction to the Buenos Aires City to recover part of the percentage of the federal tax share that had been taken away from it in late 2020, had one single beneficiary: Horacio Rodriguez Larreta, now a presidential candidate for Juntos por el Cambio. The defeat is being perceived in political terms despite the fact that there were already clear signs that this would happen near the judicial recess time, to avoid doing it in the middle of an election year. The Mayor emerges from the decision’s nuances as a winner who, still, didn’t get everything he was going for. As the fundamental issue gets deferred, the precedents for restitution claims on wrongly accrued amounts get diluted over time. 

But the injunction that was unanimously ordered by the Court in its last agreement of the year also ends up making the rest of the provinces the final beneficiaries.

First, because of what underlies the text. This litigation was always about the distribution of the “primary” share of the federal tax, which is the amount collected by the national government and then distributed to the City. The Court left in writing that the new percentage to be assigned, 2.95%, could not be detrimental to the rest of the jurisdictions. The difference will have to be paid by the Treasury.

The second reason is indirect, and it creates a technical paradox: with this ruling, the mayor announced that he would fulfill the promise to eliminate the taxes he established after the percentage Mauricio Macri had given him when he was president. The announced decrease in the gross income tax –apart from the tax on credit card payments– results in a greater increase on the taxable base for the income tax collection. This tax collection is shared between the provinces that would receive the funds they were already supposed to get, and those that will be added by the City’s tax collection.

The underlying problem when analyzing the discussion is that, for this Court, the City falls under the criteria of a constitutional city ever since the 1994 reform –a perspective that grants it with a status similar to that of a province within the outline of federalism. In this particular case, the case has already taken two years: a double public hearing, a bipartisan negotiating table, extension of deadlines and an unsuccessful attempt by the Government to challenge Horacio Rosatti with a poisoned piece of information they leaked for a front-page news bite, which backfired into a ratification from all members of the Court, contrary to their initial goal. An involuntary mistake.

Both Rosatti, Rosenkrantz, Maqueda and Lorenzetti mentioned the path to define the Buenos Aires federal tax share, from its primary organization to the definition of its autonomy. And they started from the basis that the definition of their federal tax share percentage arose from the entire “pie” that corresponded to the national government until a new Law was sanctioned, something is still delayed and is prior to the constitutional reform, since nor does it include Tierra del Fuego. The two parties had founded their cases on article 75, paragraph 2 of the Constitution and the norms and precedents that regulated the shares of the federal tax. This was one of the key legal points. The Court invoked “concurrence of wills” requirement to state that decisions regarding the transfer of powers (such as the Police in this case) must be taken jointly by the governments of both jurisdictions. For this reason, at first, it gave validity to the claim that the Fernández administration took a “unilateral” decision to reduce the transfer of funds from 3.5% to 2.32%. In return, the City wouldn’t be able, for example, to quit providing the transferred service –in this case, public safety– at its own will. Did Macri and Larreta agree to do what happened in 2018 in order to benefit CABA? Yes, because they had control of both jurisdictions. Is what the Executive alleged was the fate of the funds that Macri had supposedly overdrew relevant? It’s laudable, but for the judges that is not part of the controversy.

Under this perspective, the Court took an ax and split the number in two to now set the tax share coefficient at 2.95%, 0.63% above what was initially set by the Government and 0.55% below what Larreta demanded, dividing the weight of damage. Since the fundamental issue was not addressed, the amounts accumulated in two years of litigation would be returned only if the decree and the resulting law are defined as unconstitutional, which did not happen. On the other hand, the Court made a central clarification: they are still open to receive evidence in terms of what is the real cost of managing the police, as Larreta claims he has barely enough, and the Government says that it is plenty, and that he allocates the funds to his presidential campaign. The “concertation federalism” that the Court brandishes as a mantra is part of the conflict that was also criticized at the legal level, since it was resolved using injunctions when this is not regular, and less so when two years have gone by without any danger of delay. Larreta can attest that he expected it to take a few days.

Finally, we should repeat that Buenos Aires City’s share in the total mass of tax collection to be distributed does not affect the share of the provinces. In effect, whatever the result of this lawsuit, the provinces’ distributed resources from federal taxes will not be affected, since the quota corresponding to the Buenos Aires City is deducted only from the funds that correspond precisely to the national government in the primary distribution,” the Court noted. Basically, this deactivates the support incentive the Government achieved among the Peronist governors to accumulate a critical mass, although yesterday they were still complaining of being ignored as “amicus curiae” and strongly questioned the ruling that, deep down, does not concern their cash funds and can even benefit them with a greater tax share. On the surface, a new chapter of the showdown begins. But it’s a political one.

Originally published in / Translated by Agustín Mango


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