State subsidies rose 34.4 percent last year and reached 134.114 billion pesos
State subsidies for public and private companies rose last year 34.3 percent and reached 134.114 billion pesos, leading to the government closing the year with a 102.200-billion-peso deficit, according to a report by the Argentine Budget and Public Finance Administration Association (ASAP).
“The National Public Administration’s budget execution shows a level of expenses much higher that originally planned in the 2013 Law, while collection only grew two percent more than original calculations,” the report said. “As a consequence, a deficit of 102.200 billion was the result instead of the 533-million-peso surplus expected in the budget.”
This happens when the federal government is reportedly working on a new subsidies scheme, which would gradually cut subsidies for social sectors with higher income. Economists told the Herald the announcement could come in the next few weeks after the government reviews the final details.
“Subsidies, wages, pensions and social expenses represent almost 90 percent of public spending. Electricity rates are frozen and because of that the government has to spend every year more money, which explains the deficit,” Esteban Domecq, head of Invecq consultancy, told the Herald. “Even though rates are frozen, costs rise every year and someone has to pay the bill.”
According to the report, the increase in subsidies could have been even higher if the government had not shown “a much more moderate behaviour” in the last two months of the year. The organization reported a 48 percent increase in subsidies in the first ten months of the year, which could have lead to the final figure of 2013 reaching 148 billion pesos instead of 134.114 billion.
The 2013 budget was widened throughout the year by 151.430 billion pesos, which represents 24.1 percent of the total initial budget. Most of the money was approved by two emergency decrees signed in August and November and allotted to pay wage and pension increases and to assure the continuity of the investment plans and the subsidies policies.
“There has been an effort by the federal government over the last few years to sustain the level of economic activity by boosting the demand,” Agustín D’Atellis, economist and member of La Gran Makro pro-government group, told the Herald. “Public expenditure is used as a tool to preserve employment in a complex international scenario.”
The government collected a total 643.936 billion pesos in 2013, which is 14.719 billion more than expected in the initial budget but at the same time 25.518 billion less than expected in the current revenue budget. Increases were registered in several taxes such as the value-added tax and in pension payments due to the economic growth and prices hikes, but the revenue from export taxes was less than expected.
A growing trend
The 34 percent growth in subsidies led the government to spend 134.000 billion pesos in that area last year, a 21 percent increase compared to 2012 and 50 percent higher than 2011. That increase has been largely driven by the energy sector that received 84.400 billion pesos in 2013, 47 percent more than 2012.
“The frozen electricity rates mean that the country thas lost the fiscal surplus it previously had. Now the government has to solve this problem by reducing the subsidies gradually and without affecting lower social classes,” D’Atellis said. “There’s a consensus in the administration that the issue cannot be postponed any longer.”
Most of the funds were concentrated in CAMMESA wholesale power market administrator and ENARSA energy company, which are responsible for the purchase of natural gas to supply the local market and for subsidies in the metropolitan area. CAMMESA received last year 33.900 billion pesos (38 percent more than 2012), while ENARSA received 31.200 billion pesos (62 percent more than 2012). Third on the subsidy list was Nucleoeléctrica company (4.520 billion), currently responsible of finishing the Atucha II energy complex.
“The current deficit can be reduced by working on a new subsidies scheme. It’s the only area in which the government can now make any cuts without having a major political cost,” Domecq said. “Questions remain open on how it will be implemented but I expect announcements to come at the end of the month.”
Energy was not the only area that experienced a growth in subsidies. The same happened in the transportation sector, which received 32.265 billion pesos (10 percent more than 2012). Among the main beneficiaries, was the Trust Fund for Transportation Investments (13,365 billion), the train company Ferrocarril General Belgrano (five billion pesos), Aerolíneas Argentinas (3.385 billion pesos) and train administrator companies (3.580 billion pesos).
Increases were also registered in social subsidies, an area in which the government spent 73.400 billion pesos (37 percent more than 2012). The Universal Child Allowance was assigned 15.800 billion pesos, followed by transfers to provinces through the Federal Solidarity Fund (9.600 billion pesos) and transfers from AnSeS social security agency to PAMI pensioners health care scheme (eight billion pesos).
buenosairesherald.com