The Supreme Court ruled on Wednesday that federal tax funding for Buenos Aires city, which was slashed by President Alberto Fernández in 2020, should be restored. The Justices’ decision marked a victory for Buenos Aires city mayor Horacio Rodríguez Larreta in the dispute with Fernández, his political antagonist and potential opponent in the 2023 election.
Rodríguez Larreta argued that the national government’s measures were unconstitutional and partially impaired the City’s ability to serve its citizens. He said that projects affected by the cuts included extending the subway network, tunnel construction, putting up security cameras, buying police vehicles, and transporting prisoners into and out of Devoto prison.
In their decision, the Justices wrote that restrictions adopted after the funding cut “generated a negative impact in the delivery of essential services to citizens.”
“We’re witnessing a fateful day for federalism,” Alberto Fernández said when he addressed the topic in a speech in Formosa, where he traveled to deliver houses. “I will continue to insist that we should all have the same chances of growing and developing.” He had cut Buenos Aires city’s share of the funds in order to raise the salary of the Buenos Aires provincial police, after officers protested low wages a few months previously.
The national administration argued that it was a way of balancing the books: president Mauricio Macri had increased the federal tax share destined to Buenos Aires city during his term in office as a favor to his ally, Rodríguez Larreta, a move the current government has described as an ‘excessive’ privilege.
But, as a result of the court’s order on Wednesday the federal government must now transfer 2.95% of the relevant tax income to the city each day through the National Bank of Argentina. The city had initially requested a 3.5% share of the funds.
In a press conference on Wednesday evening surrounded by Juntos por el Cambio allies such as María Eugenia Vidal, Martín Lousteau and Fernán Quirós, he announced that he would end credit card taxes and cut personal income tax on financial instruments from 8% to 2.85%.
Federal tax shares, known in Spanish as coparticipación, are public funds distributed between the provinces and drawn from federal taxes, including income tax, property tax and value-added tax. Each province receives a set percentage of the total.
Alberto Fernández’s administration reduced Buenos Aires city’s share of the funds from 3.75% – a percentage set during Mauricio Macri’s presidency – to 2.32% in September 2020 through a decree and, some months later, to 1.4% through law 27.606, which has now been suspended. Buenos Aires city government challenged the move in the Supreme Court, which is responsible for determining the constitutionality of judicial and political decisions.
The ruling can be read as a political move benefiting Rodríguez Larreta, who has expressed his intention to run for president in 2023. He described the ruling as “a victory of the Constitution and federalism against atrocities, abuse of power, and the political divide.”