In January, public spending saw its biggest year-on-year reduction in the last 30 years, according to data released by the IARAF following the Government’s recent publication of the previous month’s public accounts.
Despite income levels remaining the same as in 2023, the improvement in the fiscal result can be attributed to a decrease in spending, particularly in certain sectors.
An analysis of the budget execution for January 2024 reveals that total revenues experienced a real year-on-year increase of 0.7%. This can be attributed to a 0.8% growth in tax revenues, while non-tax revenues saw a minor decrease in real terms, says the analysis by the institute led by Nadin Argañaraz.
On the side of primary spending, a real year-on-year decrease of 39.4% was recorded. This marks the largest real interannual variation in the past 30 years.
As a result, the primary deficit transformed into a primary surplus of $2,010,000 million. Interest expenses saw a real terms increase of 26% compared to the same month last year. This led to a fiscal surplus of $518.4 billion. The entire change in the fiscal result can be attributed to a real reduction in spending.
The most significant reductions in expenses, which contributed the most to the surplus result, were in retirements and contributory pensions (-$885,074), energy subsidies (-$366,451), real direct investment (-$321,474) and total transfers to provinces (-$310,781). These four areas contributed nearly $1,883,000 million in January 2024 currency, accounting for 70% of the total savings.
The IARAF has highlighted that 15 of the 16 spending components saw decreases. The only exception was INSSJP benefits, which saw a real year-on-year increase of 3.4%.
The items that experienced the greatest real decrease were: capital transfers to provinces (-98.3%), subsidies to other functions (-92.2%), real direct investment (-81.2%), energy subsidies (-77.2%) and current transfers to provinces (-72%).
Despite these measures, not all sectors were equally affected. While some joint ventures managed to achieve some recovery, retirements saw a further deterioration, falling by 17% in real terms, following a 3.7% real terms fall in December.
Last month’s reduction in spending and improvement in public accounts, which resulted in the first financial surplus in January since 2012, was reflected in a blow to salaries. This followed a 10.8% real decrease in resources for salary payments in October, 18.9% in November and 23.9% in December, with a further plummet of 38.1% in January.
Even though spending usually decreases in real terms in January compared to December when bonuses are paid, this decrease was due to an increase below inflation in the last month of 2023 due to mobility. No emergency reinforcement beyond the bonus was granted by the government in January.
Francisco Ritorto, an economist at ACM, explains, “The current formula for updating pensions has been causing a loss in purchasing power for a long time. Given the delay in how the formula adjusts, you end up with less spending on retirement when monthly inflation is around 20%.”
The INDEC has revealed that inflation in January was 20.6%, with a year-on-year figure of 254.2%.
In January, the government proceeded with a larger adjustment, even with the fall of the fiscal package included in the omnibus law. This included a new mobility tied to inflation from April, with January as a “lost” month. Minister Luis Caputo is aiming to achieve a zero deficit through a reduction in retiree benefits, an increase in taxes, and a reduction in other expenses.
Meanwhile, amidst negotiations with the IMF and a dispute with governors, the minister implemented a significant cut in energy and transport subsidies (-64% real), transfers to provinces (-72%) and public works (-86%). However, economist Marina dal Poggetto warns in a recent column in Clarion that this could be a “a huge reduction in spending that is not sustainable.”
For wage earners, the real income of formal workers in December hit the lowest levels since the 2002 crisis. Despite some recovery in January, joint ventures saw an average increase of 38% in the two-month period, while inflation exceeded 50% according to the Capital Foundation.
“Where there is the most bargaining power, which is in the registered private sector, 2024 will be the seventh year of real salary decline (30% real decrease, 10% in 2024), which highlights the limited social tolerance that remains. “Stagflation impacts real wages and sudden inflationary jumps cause significant deteriorations,” says Carlos Pérez, director of the Capital Foundation.
Those sectors without parity or updating clauses fared far worse. According to GMA Capital, the worst affected over the last six years until 2023 were pensions, the minimum wage and informal workers, with an accumulated drop in purchasing power of 27.4%, 30.4%, and 45.5% respectively.
For savers, the beginning of 2024 was also unfavorable, as the rate once again fell behind inflation, declining by 9.5% in real terms, albeit less than in December (12.3%). Alejandro Giacoia, an economist at Econviews, explains, “The Central Bank lowered the rate with the aim of reducing liabilities. While it was successful in this, it also ended up reducing the savings of the private sector.”
