Floor flaws but also high-flying

The week

Floor flaws but also high-flying

SENIOR EDITOR

In giving birth to this weekly roundup column half a century ago (appearing every Sunday until switching to Friday eight weeks ago), Andrew Graham-Yooll gave it the slug "Politics & labour— that slugwould now seem to stand more vindicated than ever after Monday's meeting between the government and the CGT labour umbrella helm over the income tax floor pretty much defined the rest of the week's events.

Parliament is supposed to reign supreme in fiscal policy according to "No taxation without representation" principles but there was a curious role reversal here — those paying the tax in the form of the most unionised and highest-paid workers said how much they wanted to give and within three days Congress had rubberstamped the deal by a 56-2 vote in the Senate (following endorsement by the mostly Peronist provincial governors) and approval by a 166-5 margin in the Lower House.

The CGT was not especially subtle about spelling out this clout. One of its core strategic maxims is: "Hit first and then negotiate" but Monday's savage transport strike (the last straw for departing Aerolíneas Argentinas chief Isela Costantini?) was simultaneous with the tax haggling.

Picket and protest activities disrupting traffic throughout the rest of the week seemed equally gratuitous.
Despite the income tax issue being wholly politicised, labour was thus the big winner and politics the loser (the editorial on page 22 elaborates further on how in the individual cases of the main political forces). Tactical blunders abounded — first the government gratuitously called extraordinary sessions to present a minimalist bill to a hostile Congress without any of this week's frantic negotiations beforehand, then Renewal Front leader Sergio Massa took full advantage to inflict an embarrassing I xnver 1 louse defeat on the Mauricio Macri presidency via an opportunistic bill which had no chance of being acceptable to the provincial governors dominating the Senate (since half of any tax relief was at their expense).

Rut beyond the various miscalculations the politicians were missing the point when they allowed the petty manoeuvres over the floor to distract them from the big picture of the tax system as a whole.

If Macri's Argentina is aspiring to join the OECI) (the Organisation for Economic Cooperation and Development), it should bear in mind that OECD states are overwhelmingly funded by direct taxation whose cornerstone is income tax.

This is (or should be) progressive whereas the indirect taxation dominating the Argentine system punishes the richest and poorest alike with (for example) the 21 percent IVA value-added tax failing to discriminate between consumers. It is often (and rightly) said that the inflation tax hits the poorest the hardest but the more official forms of taxation are not much better in that respect.

Yet in light of the growing business complaints about the tax burden preventing them from being competitive (their response to government calls to improve productivity), it should be said that the current system unduly penalises production when income would be a better focus in terms of economic efficiency as well as social justice.

Export duties on farming produce are paradigmatic here — not only do they bleed small farmers as much as big but they target positive contributions to the nation's trade balance instead of the rural incomes which can afford to pay the most.

THOSE OFFSHORE ISLANDS

 

Putting income tax relief into the Christmas stockings of over half a million Argentines (at least until their next wage hike) took absolute priority for the political community at least but there were other news items of interest as the country began winding down for the holiday season.

Here pride of place could be given to the resumption of mainland flight connections with the Malvinas Islands as from next October (especially given the language of this newspaper). Not that it happened locally or was given a high profile—the agreement was signed in London at deputy foreign minister level (Sir Alan Duncan and Pedro Villagra Delgado, who replaced Carlos Foradori five weeks ago).

Perhaps some nationalist soul here might feel that Villagra Delgado should have paraphrased Macbeth (we are now entering the last days of the fourth centenary of William Shakespeare's death) to say: "Hear it not, Duncan; for it is a knell, That summons thee to heaven, and me to hell," since all the advantages were seen as going Britain's way — the meeting was attended, among others, by Falklands Legislative Assembly members Mike Summers and Phyllis Rendell (who was the islands' oil director for over 15 years before entering politics) when Kirchnerism systematically froze the kelpers out of any talks as a transported colonial population (even if several Falkland families emigrated to Santa Cruz in the 19th century).

The low-key tone of this agreement may well have been prompted by an accident-prone September — the agreement between Duncan and Foreign Minister Susana Malcorra (then still in pursuit of the top job at the United Nations) accompanying the Business and Investment Forum here, which ran into local flak, and Macri's extraordinary gaffe at the UN General Assembly when he claimed to have coaxed Malvinas sovereignty talks out of the new British Prime Minister Theresa May during a five-minute encounter in a corridor.

For this reason prominence was given to the identification of the dead "Argentine soldiers known only to God" from the 1982 war, which should surely be beyond all controversy.

But there were also parallel statements on fisheries, for example, evoking the "charm offensive" of 1989-99 President Carlos Menem and his then-foreign minister Guido Di Telia. And while not explicitly reviving the Menem-Di Tella "umbrella" over sovereignty talks, Malcorra came close enough by describing them as a very long haul.

Meanwhile May has said that she will activate the Brexit mechanism (Article 50 of the Lisbon IVeaty) at the end of March, which would be just days before the 35th anniversary of the outbreak of the South Atlantic War — the two developments might (or might not) interface.

Anyway whichever airline docs handle the mainland flights, it will not be Aerolíneas—since the Malvinas destination is purely a domestic flight according to Argentine sovereignty claims, it would be wholly illogical to submit it to an international agreement. Which leads us to Costantini.

BLOW TO CEO

 

Her "resignation for personal reasons" does not seem to convince too many people — not even the word "resignation" since many pundits maintain that she was forced out. If so, the clash within government ranks might not have been so much with her immediate superior, Transport Minister Guillermo Dietrich, as with the 1 )eputy Cabinet Chief Gustavo Lopetegui, who as the former CEO of LAN would have much stronger ideas on how to run an airline than Costantini or most people.

But perhaps Costantini was simply fed up with having to work around the seven stubborn unions grouping the 12,000 employees of an overmanned airline and frustrated over being unable to break free from requiring a seven-digit daily subsidy (in dollars) like her Kirchnerite predecessor Mariano Recaldc (who left a debt of US$1.15 billion apart from all the red ink, it was recently revealed) — although some critics argue that she was far too complacent with the unions, awarding pay hikes well over 40 percent.

Yet whatever the reasons for her exit, it marks the first real failure for Macri's bid to trigger a "confidence shock" via the recruitment of highprofile CEOs (like Costantini from General Motors) — even if his Energy Minister (and former Shell CEO) Juan José Aranguren has caused him multiple headaches throughout the year. A dysfunctional public sector is not necessarily improved by bringing in the private sector. United States president-elect Donald Trump with his highly plutocratic future Cabinet might usefully take note.

Talking of Trump, his potentially negative impact on Argentina's trade prospects and interest rates might well lead to the logical expectation of Argentina moving closer to China but this has not especially been borne out by recent developments.

Facing a chorus of protectionist manufacturers, Macri is showing scant interest in recognising China as a market economy (mind you, he has plenty of company there around the world) and this week the Supreme Court banned work on the Chinese-funded Nestor Kirchner and Jorge Cepernic mega-hydro-electric dams in Santa Cruz, pending an environmental impact study. The latter ruling was not Macri's doing, of course — the separation of powers is alive and well in Argentina this year — yet Beijing's patience may be strained. During last year's election campaign Macri specifically hinted at scrapping these dams while generally distancing himself from such Cristina Fernàndez de Kirchner allies as China, Russia and Iran, only to renew the agreements with some token changes once in government.

Now China might well view these new hitches as tantamount to a default.

Last but not least, a Merry Christmas to all readers and also a I lappy New Year since this column will not be appearing as such next Friday (it will be subsumed into a summary of all 2016 — the traditional "That Was The Year That Was").

Menciones: 

The low-key tone of this agreement may well have been prompted by an accident-prone September — the agreement between Duncan and Foreign Minister Susana Malcorra (then still in pursuit of the top job at the United Nations) accompanying the Business and Investment Forum here, which ran into local flak, and Macri's extraordinary gaffe at the UN General Assembly when he claimed to have coaxed Malvinas sovereignty talks out of the new British Prime Minister Theresa May during a five-minute encounter in a corridor.

www.prensa.cancilleria.gob.ar es un sitio web oficial del Gobierno Argentino