MercoPress. South Atlantic News Agency

Argentina emergency bill in Congress: 30% tax on dollar purchases and six month freeze on public utilities rates

“This bill is the first step to resolving Argentina’s economic crisis,” Economy Minister Martin Guzman told reporters in Buenos Aires.

Argentina's new government announced on Tuesday a 30% tax on foreign currency purchases and a six-month freeze on public utility prices as part of a raft of measures to boost growth. The government of President Alberto Fernandez, who took office last week, had already announced increases in taxes on agricultural exports over the weekend.

The fiscal package emergency bill was later sent to Congress, where his coalition will face its first test. Fernandez seeks to obtain sweeping powers to renegotiate debt, raise salaries and taxes, while controlling prices of politically-sensitive items such as utilities and medication.

Also among the measures proposed are higher taxes on the wealthy, and follows recent decrees for temporarily doubling severance pay and lowering medication prices.

“This bill is the first step to resolving Argentina’s economic crisis,” Economy Minister Martin Guzman told reporters in Buenos Aires. “We have to discourage savings in a currency that we don’t make, which is dollars.” Basically they are aimed at boosting spending with a focus on social programs in the hope of reviving domestic consumption and restricting dollar outflows.

“In 2017, a reform was enacted for an economy that was going to grow and instead went into freefall,” Guzman said. “If we want to solve the crisis we have to change that. If not, our fiscal problems are going to get worse,” he said. “We cannot allow the deficit to grow.”

The 30 percent tax on foreign currency purchases, which remain limited to US$ 200 a month, will include those made with credit cards.

“We need to discourage savings in dollars that we don't produce,” said Guzman, who said taxes on peso savings would be scrapped.

Guzman also announced a rise in rates of personal property taxes as well as those on financial assets held abroad.

“This set of measures seeks to maintain certain balances, and change priorities to protect sectors that are highly vulnerable,” the minister said.

He announced a bonus of 10,000 pesos (US$ 160) for pensioners, to be paid in two tranches in December and January.

“This is about stopping the Argentine economy from falling while we protect those we can't ask more from,” said Guzman.

Argentina's economy is expected to shrink by around 3.1% in 2019, as inflation hovers around 55%, poverty near 40% and unemployment rising to 10.5%.

Some of the main proposals in the bill sent to Congress include, Debt negotiation, authorize the executive to carry out measures necessary to ensure the sustainability of public debt

Authorize the government to issue as much as US$ 4.6 billion of 10-year, dollar-denominated notes to the central bank in exchange for hard currency, which will be used to service dollar debt payments.

A boost in salaries, attending to the most vulnerable sectors and creating mechanisms to facilitate salary agreements.

Likewise energy utility prices will remain unchanged for 180 days. Maintain electricity and natural gas subsidies under federal jurisdiction and authorize the executive to start the renegotiation process. Authorize the executive branch to “administratively intervene” in national energy regulators.

Soybean export taxes may rise to 33% from 30%, while wheat and corn export taxes may rise to 15% from 12%U.S. Authorize government to apply 30% tax on dollar purchases during five fiscal periods, using 70% of those proceeds for social security. Tax will also apply to foreign transactions and the wealthy will pay 0.75% on assets between US$3 million and US$6.5 million; 1% on assets valued between US$6.5 million to US$18 million and 1.25% on assets US$ 18 million and higher.