AUARIO DESAFÍO EXPORTAR – Argentina has started the road to be a normal country. No doubt. The discussion may be whether is it going too slowly or not. Of course, it is worth asking: “slowly in comparison to what?” One answer may be, faced with the need to solve the problems that the new administration had inherited in a prudential time, and given the risk of having to go through an international crisis. If in the next few years the country was to experience another debacle like that of 2007-8, it would be much worse off than then to face it. Both due to the situation of fiscal weakness and the relative insolvency of the Central Bank.
The other possible answer is regarding the speed of the adjustments that Argentinians are willing to endorse. It is there where the government justifies the moderate step in the structural reforms that Argentina needs to carry out, beyond the fact that the election result in October meant a clear support from the society for its management. This is very difficult to evaluate but it´s probable they are right. It is remarkable, although Argentinians complain about the enormous tax pressure of Argentina when a politician proposes an increase in spending society applaud as if it were not going to be later paid with the money from the exhausted pockets of taxpayers. When some functionary says “there will be no adjustment”, we sigh in relief. Actually, we should worry because what he is saying is “We will not make the adjustment, your family will do it”.
Any formal worker, who pays income taxes, currently works around half of the month for politicians and just after that it starts doing it for his family. And that’s why it’s not strange to see that is difficult for a family to make it through the month? Be aware of the invalidity of arguments that prompts to say “businessman should pay for it.” Argentina is among the 12 countries in the world that squeeze companies with taxes. So if there are 177 nations that offer local and foreign investors better tax conditions. Why would they produce there? Is it because Argentines make the best barbeques? Then, Argentines shouldn’t complain that it’s one of the countries with the highest amount of capital outflow or that investments are hard to find and hence there is not enough formal employment or good salaries.
If we want this country to do well, so that we all have more opportunities for progress, we should learn to put ourselves in the place of the entrepreneur who generates jobs. We must bear in mind that not many people have the necessary skills to be successful in business creation, that’s why countries fight to attract them, except for us who until now have done the impossible to drive them away. For example, none of us would work for free, unless it is for charity. However, the previous government decided to forbid foreign companies that invested in Argentina from taking their profits. Have they by any chance considered that those companies were philanthropic organizations?
Argentines also applaud when a new tax or contribution is paid by the employer. But they have not yet understood that in the long run, they will pay for it. If one had to hire an employee, the first thing we would do is ask ourselves how much he will produce. Let’s say it’s $ 100. So we will subtract everything that has to be paid to the State and the unions, $ 36. Also all the contingencies for possible dismissals and lawsuits, given that Argentina has a law that encourages the lawsuit industry, so probably the real wage will not be more than $ 55, which is what you will be willing to pay. If nobody wants to work for that amount or, despite having applicants, the law or collective agreements prohibit paying that amount, the employer will not hire anyone or he could hire but in an informal way. Then Argentinians are amazed that in Argentina has high unemployment and informality in the workplace and that workers receive little for their work in spite of the fact that is very expensive for businessmen to hire them.
Now, let’s see why companies are uncompetitive in Argentina. We already concluded that the labor cost is high, while the employees earn little. In addition, in 2016, workers logically wanted to lose the least possible purchasing power and in 2017 they sought to recover as much as possible of what had fallen the previous year. The problem is that the employer previously received subsidies to public service rates that allowed him to be more generous with salary payments, and now they are being taken away. On top of that to the vast majority of the sectors, the national, provincial and municipal states, reduced little or nothing – and in some cases, they even increased – the tax burden. This means that, with the same level of sales as before the recession, businesses will not be able to pay salaries with the same purchasing power and obtain the same profits as before 2016. On the other hand, with similar increases in costs, it will be impossible for them to compete with producers in other countries. Obviously, they can only do so if they invest to gain productivity and lower costs, including the number of employees to produce the same amount of product, that is, generating fewer jobs. That is, we are encouraging the worst of the solutions, in addition to the most inefficient, given the high local cost of capital.
Almost any good or service that Argentinians buy, has included in the price they pay, between 40% and 60% of taxes. How is it not going to be more expensive than outside? Let’s add that the state in its three levels has not enough income after squeezing them with taxes to pay their expenses, and so it absorbs large parts of the available credit internally. Therefore, what remains for the private sector is little and expensive. As if with what it takes internally is not enough, it gets in debt and brings foreign currency which floods the domestic market lowering its local value. If we add to this a still very closed economy and with relatively little demand for foreign currency to import, we can see why the exchange rate is so cheap. This means that producers of goods that are exported and those who import that don’t have the benefit of state protection, produce less and hire fewer employees: all to save the business of some inefficient entrepreneurs.
Conclusion: Argentines must demand a profound reform of the State so that it is transformed into one that serves the citizens and that is payable. Also, a reform of the archaic labor legislation and the feudal guild that it’s currently in place. The one proposed by the government was diluted in some valuable punctual solutions. Finally, only those entrepreneurs who sell the best quality at the best price should earn money and the state should stop protecting those inefficient that produce at expense of the former. If not, let’s get used to an economy that, hopefully, will grow little.
By: Aldo Abram Executive Director, Libertad y Progreso.