Is Argentina On The Brink Of a Tax Revolt?

“We can’t take it anymore,” proclaims the economist and media sensation Javier Milei from his Twitter account. He is not alone. It all started a few weeks ago with a “Twittazo” inviting people to protest against the high taxes and the huge public spending. The hashtag #BajenLosImpuestos (lower taxes) quickly became a trending topic. On March 21 what began as a virtual protest is moving to the real world, writes Federico N. Fernández.

Organized by prestigious economists, foundations and think tanks, members of the press, student organizations, and taxpayers groups, the first Argentine anti-tax protest will have its epicenter in Buenos Aires at the gates of the Parliament. However, there are groups all across the country working to organize similar events in cities like Rosario, Córdoba, Corrientes, and many others.

When he campaigned for office in 2015, President Mauricio Macri seemed aware of the heavy tax burden of the country. However, most of his promises about reducing taxes have never come true. The only concrete step taken by his administration – the progressive elimination of the export taxes on agricultural products – was “put on hold” due to budgetary constraints. Moreover, Mr. Macri has not only failed to reduce public spending but he has also created some taxes of his own. The most pathetic example is a tax on financial investments in late 2017, which many signal as one of the major reasons for the financial crisis of 2018, which hit Macri’s administration to the point of having to negotiate a rescue package with the International Monetary Fund (IMF) to avoid a default of Argentina’s sovereign debt.

Argentina’s fiscal situation is appalling. The Paying Taxes 2018, a report issued by the World Bank and PWC, showed a horrific scenario. The taxpayers face up to one hundred taxes and in the item of “total tax and contribution rate” the percentage is an impossible 106. In the same category, Latin America as a whole scores a 52.6 per cent, Europe 39.6 per cent, and North America 38.9 per cent.

Argentina posses another shameful record. It is the country with more fiscal auditing and tax raids than any other place in the world. What is more, according to the report, Argentina is the country with the most taxes in the world and the fifth regarding tax evasion. Needless to say, when fiscal pressure is of 106 per cent, there are no other ways to survive.

At least we can’t get worse than this, one may think. But, as it turns out, it can. A recent report issued by the non-partisan local think tank IARAF – their Tax Vademecum – claims that individuals and companies may face the grotesque figure of 163 different taxes, 40 of them are raised by the national government, 40 by the different provincial authorities, and a staggering 82 by the municipal administrations. It seems there is no lack of fiscal creativity – particularly on the city level.

As a consequence of this über feudal tax policy, per every 10 pesos an Argentinian spends, between 3 to 8 can end up in the pockets of the government. Perhaps a very telling example are purchases of new cars: when someone buys a new car at the dealership, he or she will pay 54.8 percent of the car’s value in taxes – that is, it is literally more taxes than the car itself. A similar ratio can be observed in textile products. Fundación Atlas 1853’s Director Martín Simonetta once said about this situation: “Since I am poor I have to buy all my clothing in Miami.”

For a long time Argentina was under what I called Unproductive Economic Freedom. The tax policies were completely out of hand but the state was too big and too clumsy to collect its dues. The result was a situation in which a sort of economic freedom came into being from the informality that allowed for survival but not for real economic growth.

This is because the market economy seems to thrive in environments where people pay their taxes – because they can afford to pay their taxes. Governments and states are a reality. As long as they exist, taxes will be something we have to deal with. Therefore, it is key that they are low and simple. The alternative is regime uncertainty and illegality. This scenario has been proven again and again incompatible with sustainable economic growth.

However, the weaponization of the income tax carried out by Néstor and Cristina Kirchner in the early 2000s has put many individuals under the reach of the tax collectors. Thus, a worker who earns 38,301 pesos (a meager 994 US dollars at the current exchange) pays 9 per cent of it as income tax. Incidentally, the income tax is progressive and the highest rate is 35 per cent. On top of this, according to tax experts, Argentinians have to work 60 per cent of the year for the state. Nonetheless, the head of national revenue agency AFIP – Mr. Leandro Cucclioli – recently expressed that there is no end in sight for this tax torture. “We need more people to pay what they have to pay. The more we formalize the economy, the better for everyone,” said the taxman-in-chief.

It seems that not everybody agrees with him, though. And the events of March 21 may very well shake the foundations of an extractive political class which has been testing the levels of toleration of the society for too long.

Federico N. Fernández is President of Fundación Internacional Bases (Rosario, Argentina) and a Senior Fellow with the Austrian Economics Center (Vienna, Austria).