25% 20% 15% 10% ARGENTINA: PUBLIC SECTOR CURRENT REVENUES EXCLUDING SOCIAL SECURITY EXCLUDING SOCIAL SECURITY TOTAL CURRENT REVENUE SOCIAL SECURITY REVENUES 5% '50 51 52 53 54 55 56 57 58 59 '60 '61 '62 '63 '64 '65 Est. Budget 80-491-67-vol. 1—37 ARGENTINA: PUBLIC SECTOR SAVING AND (PERCENT OF GROSS DOMESTIC PRODUCT) TABLE A-3.-National Government (fiscal year Nov. 1-Oct. 31) 1 Including taxes shared with provinces and municipalities. For comparability with earlier years, excludes accounts of certain decentralized government organizations. NOTE.-Details may not add due to rounding. 1 Including taxes shared with provinces and municipalities. For comparability with earlier years, excludes accounts of certain decentralized government organizations. NOTE.-Details may not add due to rounding. Public sector investment has been maintained at the rate of about 5 percent of GNP per year. (During 1961-63 real investment was probably higher as official data exclude investment financed by foreign credits.) Thus the elimination of any gross savings in the public sector has resulted in financing investment by sizable deficits of the National Treasury. In 1964 this has meant a savings gap (gross investment less gross savings) of roughly M$N140 billion, or about 6 percent of GNP (about M$N2,400 billion), most of which fell upon the National Treasury to finance. (See table A-1 and accompanying chart.) B. DETERMINANTS OF THE DETERIORATION This decline in public sector savings has resulted from government consumption expenditures and transfers remaining either constant (or slightly increasing) in real terms and as a share of GNP while current revenues have fallen by one-fourth. (See table A-2 and accompanying charts.) This deterioration is most obvious since the 1960-61 prosperity but is also true since the 1950-57 period. The roots of this decline cannot be explained simply in terms of the cyclical downturn of 196263 but is tied to a series of interrelated structural factors: weak government, inelastic tax system, inefficient public enterprises, increased rate Some of this deterioration (about 1 percent of GNP) can be explained by the change in the fiscal year in 1957 which distorted future statistical data for comparative purposes. See later discussions. 20% ARGENTINA: TOTAL OUTLAYS, REVENUE AND DEFICIT of inflation (relative to 1952-57), inadequate tax administration, slow and uneven rate of economic growth, a fall in the money/GNP ́ratio in the past 6 years, the turnabout in the savings performance of the social security system, and the tendency toward peso overvaluation. Weak government.-Frequent and destabilizing changes in government in the last 10 years have resulted in weak and uncertain efforts to deal with the deeply embedded problems of tax reform and ad ministration, inefficient public enterprises (chiefly the railways), as well as to provide stable economic policy needed as a framework to promote economic growth and restrain inflationary pressures. During years of government transition (1955, 1958, 1962, and 1964, the first full year of administration of a new minority government), the government revenue share (current revenues as a percent of GNP) fell by 10 to 20 percent. Furthermore, weakness of the Central Government has meant serious inroads into the National Treasury by pressures from the public enterprises, Provinces, municipalities, and the social security system. By failing to coordinate policies within the national economy the Central Government has at times been forced to come to the rescue of semi-independent government units, many of which have tended to overspend and undertax or undercharge for services and then fall back on the National Treasury for financing. Since 1961, for example, while public sector revenues declined in real terms by one-fourth, revenues remaining to the National Treasury fell by one-half. The Provinces and municipalities in this period had increased their participation in shared revenue sources from 33 to 40 percent rather than updating property tax assessments or raising their gross receipts tax of slightly less than 1 percent. Inelastic tax system. The Argentine tax system has been inelastic relative to changes in money income not only because of the other determinants, such as poor tax administration, but also because of its basic structure. Compared to similar countries, Argentina's tax system places a greater reliance on direct taxation (including social security payments) than on internal indirect and foreign trade taxes. In comparable countries direct taxes have tended in the last decade to be decidedly less income-elastic than indirect taxes, mostly due to the latter's greater ease of administration. Argentine National Government revenues have been divided about evenly between direct and indirect taxes while comparable countries generally have a direct/ indirect tax ratio of about one-half, if adjustments are made for income tax revenues on exports of large (chiefly foreign) extractive corporations. A second structural feature of the Argentine tax system is the critical lag between the tax base, tax assessments, and payments as well as the lag in increasing specific tax rates and charges (as contrasted to an "automatic" ad valorem indirect tax structure). The taxes on income and sales are estimated generally on the previous year's tax base, are payable in the current year, but often collected in the following year. Thus it is not unexpected that changes in the revenue from these taxes are related to changes in the previous year's tax base. This lack of flexibility often results in perverse fiscal effects. A further disturbing feature that has heightened the disadvantage of the noncurrent payment of important taxes is the increased rate of inflation. With prices increasing about 25 percent per year, this results in a loss in real tax revenues of the same percent when they are actually collected. In addition in recent years frequent oscillations between boom and bust have meant that in good years taxes could be paid but are not due while in bad years high tax payments based on earlier years cannot be paid because of a current recession or lack of liquidity. |