11 August 2008

Income redistribution?

An example of why I don't consider Cristina Kirchner's to be a progressive government, and why the Kirchnerist mantra about their income redistribution goal is a big lie, and why I think it's OK if the middle- and upper-class heavier consumers are charged more for utilities: an article on Crítica Digital, titled Los mosqueteros de la redistribución ("The Musketeers of Redistribution" — Minister of Federal Planning and Infrastucture Julio De Vido, Secretary of Transportation Ricardo Jaime, and Secretary of Domestic Commerce Guillermo Moreno). I translate freely:

"This year, one million families with incomes in excess of AR$6,000 per month will receive a state subsidy of AR$750/month in the form of cheap power, domestic natural gas and fuel. This is the equivalent of five social plans [welfare payments] of AR$150/month, which are still received by little less than one million household heads under the extreme poverty line."
The minimum wage has been recently raised to AR$1,200, from an earlier figure of AR$980 established in July 2007.
"We have already written about the sales boom of natural gas-powered heaters for swimming pools, of the rage in 1,000-watt searchlights for the gardens of the most exclusive closed neighbourhoods, or the growth of the market of high-end diesel cars. Since nothing is free in economics, these subsidized prices are paid by the state, which this year will give away nearly AR$20 billion to compensate energy companies."
For comparison, the federal state collected taxes for about 17 billion in March and 24 billion in July, so this is like giving away a whole month of taxpayers' money. You could argue the subsidies go to the taxpayers, only they're not the same taxpayers. Most of those billions come from the IVA (our VAT), which is 21% over most goods and services (including food), so the poor pay a disproportionate amount of it, because everybody needs food, and most of what the poor buy is food. A smaller amount comes from a profit tax that leaves ample room for evasion, and that the government doesn't even try to collect. In fact, the government is about to exempt individuals with monthly wages over AR$3,300 (single) or AR$4,500 (married with children) from the profit tax, detracting from the total collection.

The government actually benefits from the "inflation tax". Every month it proudly exhibits huge and increasing tax collection figures, which is easy when your main source of revenue is tied to the prices of consumer goods. Coupled with INDEC's low inflation rates pulled from Guillermo Moreno's ass, it lets them believe or pretend that the country is growing fast, although that plainly happens only in nominal terms.
"From the total subsidies to the energy sector, the generous Argentine State will provide this year AR$9bn to subsidize the consumption of that higher-income social group. Incredibly, there are still well-off middle-class people who complain that the State "gives away" Jefes de Hogar welfare plans, which today are received by extremely poor households mostly headed by women. The 2008 budget for the Unemployed Heads of Household programme is only AR$1.8 billion."
Yes, many in the middle class are really angry that the poor "don't work, don't pay taxes and get money from the government", while "decent hard-working citizens" have to struggle to go on vacations or change the car every few years. I've heard borderline middle-class citizens demand that the government "sends those lazy bums to work", disregarding the fact that most of them are single women with small children, or young men who have no qualifications at all. This is the state's fault, but taking away their welfare payments is not a viable remedy.
"So as to dispell all doubt regarding the magnitude of the redistribution exercised by [Julio De Vido's] Ministry of Federal Planning: the nine billion pesos devoted to subsidize the consumption of well-off citizens are well above this year's budget for the Ministry of Social Development (AR$7.6bn); they're on par with the annual budget of the Ministry of Education (AR$9.3bn); and they represent 2.5 times the budget of the Ministry of Health (AR$3.5bn)."
This was just the first part of the article devoted to the "Musketeers of Redistribution", who (as you see) wield huge power over the lives and fortunes of Argentinians, and who are accountable only to the office of the President. If and when I have the time, I'll translate another part.

2 comments:

  1. I'm starting to like and dislike this one. By the way, am I the most loyal reader/commenter of this blog? you do great work!

    But on this subject, it is horrible if 100% accurate and true. It continues the premise that Argentina is a generous country, they simply give to everyone. The biggest problem in the western province's health care is the foreigners enjoying free care. Chileans flood the hospitals in Mendoza because they don't have to pay any fees , causing more strain on an already poor health care system. This is a similar idea.

    What I don't like is that you have recently claimed to be clinging to your middle class standing, meaning that you are in the snack bracket that is benefiting from this scheme. It goes without saying that if they cannot tax the better off people, IE the farmers, then how can the government truly redistribute wealth?

    I understand that this tax break is sucks, but it does tend to back up your statements about the poor being poor for more reasons than bad circumstances, but rather they choose it.

    Before you comment that you never said the poor are poor because they choose it, i think there are few options when you consider that you excluded them from circumstance, poor wages from richer companies and a horrible class system that continually represses them....

    My question is, do you simply mis-trust and hate all government, as most Argentines seem to do, or do you have any fundamental political beliefs and tendencies?

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  2. Jeff, I have no way to track your reading habits, but you're certainly the most frequent commenter these days. :)

    Several things to point out. One, if Argentina gave to everyone, then the poor would be much better off. What in fact happens is that the giving is done rather indiscriminately, and the poor are the ones with the least ability to claim it. I mean, there's a consensus in Argentina that health, housing, drinking water, food and education are human rights - but the poor have no means to demand them to the state. Affiliating with "social movements" worked for a while, but then those became either co-opted by the government or irrelevant.

    You said, "What I don't like is that you have recently claimed to be clinging to your middle class standing, meaning that you are in the snack bracket that is benefiting from this scheme." I don't follow here. I am of course benefitting from cheap utilities, but my family income is certainly below AR$6,000. We could afford paying a bit more, but we're already holding back consumption. Wealthier families do not hold back, and pay fees that amount for a laughably small portion of their income.

    Regarding the Chileans in Mendoza's hospitals, well, that's a problem for politicians to talk about. A welfare state is always open to abuse; the task for those who manage it is to keep it going for the needy, while preventing the well-off from taking advantage.

    About the question of who's responsible for the poor's poverty, what I meant back then was that the mere existence of rich people doesn't mean there has to be abject poverty. This I noted because I think that implication is a form of political slander, one that has seen much use lately. The Argentine state right now has a lot of money, but the redistribution is being done wrong. I'm no economist, but I'd say no new taxes are needed; just taking away some tax exemptions, and gently correcting the subsidies given to utility companies so that we don't all pay for the excesses of the top 10% consumers. Some say there has to be a tax on mineral exports, which would be fine, considering the huge environmental damage they cause.

    I haven't yet seen a government that I like from beginning to end. :) I liked Kirchner's first two years. That Kirchner was (I think I wrote it somewhere) even considering all his faults, the best president we'd had in decades. If only he hadn't been a power freak.

    I'm no anarchist or libertarian. I think the state should be present everywhere, but cannot be expected to regulate everything and solve everyone's problem. In this sense I like what's being done here in Santa Fe by the current Socialist administration. They're always proposing ideas, calling people to gather and talk, negotiating, and planning for ten years ahead. Right now they're about to increase taxes - nobody likes it but most people understand it, and so we're not having riots in the streets or blockages in the roads. The tax reform is in the provincial legislature and will be discussed.

    It's not revolutionary, or efficient, but on the long term it works. Of course, it's managing the status quo, not changing it. But since it's a provincial administration and most of its funding depend on a hostile federal state, there's only so much they can do.

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