Argentina in the Last Three Decades

Against the background set out above, based on the broad international experience, it is worth briefly mentioning the evolution of some relevant norms in the Argentinian case. I begin with the federal Transitory Law for the Distribution of National Resources (Coparticipatory Regime) enacted in 1988.

I refer here to ‘common revenues' since, in the revenue-sharing mechanism in force in Argentina, each level determines its ‘revenue mix', combining its own resources or revenues from its own jurisdiction with a share of the com­mon ones. Common revenues consist of federally legislated, administered and collected taxes (that is, the main taxes) in the proportions established by law and involves both a primary and a secondary distribution. The primary distribution is the one between the federal government and the provinces, as described in the preceding paragraph. The secondary distribution involves dividing the provincial share of the ‘revenue pie' among the 23 provinces, like­wise in specified proportions.^[65]

The 1988 law—which was explicitly intended to be transitional—is still in force today, albeit with numerous modifications. It was the moment at which certain regulatory concepts for provincial taxation powers were enshrined in law, particularly those related to the Gross Incomes Tax (Impuesto sobre los Ingresos Brutos (iib)) and Stamp Tax (Impuesto de Sellos (is)), and espe­cially in relation to their taxable bases, their sectoral incidence, the activities affected by the tax, and so on.

The 1988 law (which has the status of a ‘Ley-Convenio’, or ‘framework leg­islation’) set out the detailed regulatory framework applicable to the iib and the is, and was predominantly directed at enforcing revenue sharing, given the need for approval by the legislatures of all the provinces (including, in the case of bicameral legislatures, both Houses). It is worth emphasizing this point, because in a law mainly dealing with a principal instrument of fiscal coordi­nation like the revenue-sharing regime, clauses were introduced to precisely constrain the exercise of taxation powers recognised as provincial ones in the framework of the fiscal constitution previously in force. Besides an explicit requirement to avoid double taxation, the underlying idea then influencing federal tax policy was a durable one: the iib needed to be constrained given its cascading effects common to any ‘turnover tax’. Also targeted was the Stamp Tax (is) on the grounds that it was a ‘bad’ (that is, unduly distorting) tax.

This was not the first attempt to deal with the iib. Previously, in 1974, when vat was adopted at the federal level, the iib was abolished and replaced with the Impuesto de Patentes. This fiscal experiment had a very short life, because the yields from the iib were too high to be replaced by other tax alternatives, and it was quickly reinstated. Subsequent reforms to the iib were intended to reduce its cascading effect by applying a scale of tax rates progressively increasing from agricultural products to manufactured goods and to services.

This was the general situation of relative tax powers at the end of the 1980s when Law 23.548 was enacted. The federal government enjoyed a strong tax muscle thanks to vat, in place since 1974, but was required to share its pro­ceeds with the provinces; meanwhile the provinces collected the iib and other levies that were widely seen as imperfect revenue bases. Though budgetary reasons precluded the abolition of the iib, its design, implementation and effects could still be altered.

In 1991 ‘the age of pacts’ began, some of which targeted provincial tax powers. One of the main pacts was forced by the need to fund a reform of social security and entailed a reduction in the ‘shareable mass’,^[66] reducing the resources available for the provinces, despite a ‘guarantee’ clause (August 1992), but did not increase restrictions on provincial tax powers. A year later (August 1993), another of these pacts, in addition to modifying the vertical fis­cal federal revenue-sharing scheme (including a new guarantee of the level of federal resources to be transferred), included provisions that clearly altered the nature of the tax autonomy exercised by both provincial and municipal

table 10.3 Modifications to Sub-national Taxation under the Federal Agreement oftggß

SOURCE: PROVINCIAL LAWS AND NATIONAL DECREE 14/94, 6 JAN.

governments (see Table 10.3). Known as the Federal Agreement for Production and Growth, the pact's stated objective was to enhance the competitiveness of the economy, including through further constraints on sub-national tax auton­omy that targeted both the tax rates and tax bases of provincial and municipal taxes and other levies.

The modifications imposed on provincial and municipal taxes, some of them immediate and others to be phased in, significantly weakened the provincial ‘tax sword', notably in relation to the Property Tax (Impuesto Inmobiliario (ii)) and Stamp Tax, both important provincial taxes, as well as to the ‘tasas’ lev­ied by municipalities and local governments for different services delivered in their jurisdictions. The pact also eliminated sectoral charges in the iib.

The logic of federal-provincial negotiations which led to such ‘agree­ments' was one of ‘carrot and stick', based on assurances of a minimum level of transfers to provinces in exchange for provincial/municipal renunciation of tax powers and homogenization of their taxes and levies, along with other reforms.^[67] Of prime importance was the requirement for the final elimination of the iib and its replacement by a tax similar to the Retail Sales Tax applied in the USA and Canada. Again, the removal of the iib was the main target for getting to a more efficient tax system.

The problem underlying this attempted reform was the heterogeneous weight in different provinces’ tax structures of the sub-national taxes targeted for reduction or elimination. Usually, iib and is were of major importance to provinces with a more advanced economic structure. So, for ‘industrial’ prov­inces, the elimination of the iib on manufacturing would cause a major loss of revenue, while for others it would be negligible. Not all of them generated much revenue from is and many of them had very outdated cadastral values (assessed land values by a public organism) levying the ii.

Additionally, if implementation of the proposed Retail Sales Tax had been immediate, required tax rates or ‘substitution rates’ for achieving similar rev­enues to those collected from a ‘cascading’ tax instrument like the iib would have needed to be very high: two or three times the average rate in force under the iib.

The natural development of the agreement would have entailed a march at different paces and following different paths for each province. In the end, implementation of the rst was abandoned: the iib survived once more, though with reduction or elimination on primary and secondary sector pro­duction and a compensatory increase in rates on tertiary-sector production.

These changes took effect progressively in connection with fiscal feasibility considerations closely linked to the evolution of general macroeconomic con­ditions in the country as a whole. The end of the 1990s saw serious economic deterioration which culminated in the great crisis of 2001-2, when the country was required to default on its debt obligations. That experience of economic failure left the different federal and provincial actors in varying financial posi­tions and also left the tax reforms described above at different degrees of implementation. To further complicate the picture, new taxes were introduced in response to the crisis, both at the federal level and in the provinces.^[68]

In late 2015, a decision by the Supreme Court suddenly changed the situ­ation again. The 15 per cent reduction in the ‘shareable mass’ (in place since 1992) that cut transfers to the provinces in the revenue-sharing system was declared unconstitutional, imposing the need to build a new fiscal federal framework and to re-balance an overall fiscal relationship that placed the Federal Treasury in a fragile budgetary situation.

table 10.4 Fiscal Consensus 2017: Tax Cuts and Changes to the iib

Rates (percentages)

Key: wm = Without Maximum (or Limits).

SOURCE: ANNEX I OF THE ‘CONSENSO FISCAL FEDERAL’, APPROVED BY A NATIONAL LAW

THAT ADDITIONALLY REQUIRES APPROVAL BY ALL THE PROVINCES OF ARGENTINA.

So, in 2017, barely 25 years after the pact of 1993, a new federal agreement was signed by the representatives of the nation and the provinces, going by the name of ‘fiscal consensus' (see Table 10.4). It compensated the nation by granting it the exclusive right to the Tax on Bank Debits and Credits, as well as approving various specific changes limiting and re-regulating the exercise of sub-national tax auton­omy as a way of achieving more efficiency and competitiveness for the economy. It also provided provinces with the ‘carrot' of an acceleration of the phased-in ‘refunding' of the 15 per cent reduction that had been declared unconstitutional.

Once again, the agreement targeted the iib. It aimed to reduce the impact and incidence of the iib on intermediate phases of economic activity, espe­cially in interprovincial commercial operations, as well as defining rates and tax bases for certain sectors to be consistent with the macroeconomic and fiscal goals announced.^[69] Ultimately, the agreement involves an implicit basic form of tax harmonization of the iib to be pursued and achieved at a pre­scribed pace. Table 10.4 sets out the schedule for implementing its changes to tax rates and tax structure.^[70]

The agreement is thus conceived as a new phased-in approach to eliminating the iib on primary activities, manufacturing, utilities and transport, at different paces over five years; and to reducing it in some other areas, while continuing to apply higher tax rates on commerce and financial services. In a certain sense, it is a similar strategy to the one followed in 1993: modifying the structure of the iib to shift the tax burden on to the final consumer and away from the productive and infrastructural sectors. Once more it followed a line of action where sub-national tax powers are defined jointly with the redefinition of the revenue- sharing sys­tem. And, in the end, it remains a federal strategy born in the national cabinet.

We see here—as in the other reform efforts described—an additional form of ‘co-determination’. The Senate intervened in the first instance (or, in constitutional terms, the provinces through their senators), which in itself implies its participation, then intervened again by means of the direct working of their institutions which approved to the ‘leyes-convenio’ (provincial laws passed after a general agreement was made). Thus, there is, in effect, double co-determination.

In such a context, the type of autonomy emerging from national laws enacted following agreements between the national and provincial govern­ments, despite being approved at each governmental level through their con­stitutional and legislative institutions, remains a ‘regulated autonomy’, oper­ating as a principal-agent-type relationship even in the execution of those powers already contemplated in the fiscal constitution^⁶

Regulated autonomy does not usually emerge in its initial form from hori­zontal mechanisms for achieving consensus or agreement among provinces themselves (as represented by their governors, for example)?⁷ Instead, it is born in general in the orbit of the national government, which becomes the main actor in the whole tax structure, national and sub-national. As a result, the workings of Argentinian fiscal federalism at best only weakly resemble the

table 10.5 Relative Weight of the Tax Burden Generated in Argentina (% of Tax Revenue/ GDP)

SOURCE: SECRETARIA DE HACIENDA, MINISTERIO DE ECONOMIA Y FINANZAS PUBLICAS DE LA REPUBLICA ARGENTINA, VARIOUS ISSUES.

classic model of highly autonomous actors operating in distinct and separate fields.

This is particularly true in relation to the generation of tax resources and the relative importance of national and sub-national tax revenues where, as Table 10.5 shows, provinces and local governments play only a minor role. Given the macroeconomic stabilization goals usually entrenched in the agree­ments reached, it is striking that so much emphasis is placed on the provin­cial tax structure which, in quantitative terms, occupies a decidedly secondary position in the whole revenue system.

Turning from the narrow concept of tax autonomy to that of broader ‘bud­getary autonomy'—which includes the expenditure side, fiscal results and public debt—we also need to refer to significant further restrictions on provin- cial/local autonomy imposed by the so-called ‘fiscal responsibility laws', which, if not actually coercive in relation to provinces,^[71] [72] ¹⁹ have frequently produced imbalance.

In such laws, provisions have tended towards being clearly asymetricd⁹ with greater insistence on the imposition of financial discipline in provincial juris­dictions, and less consideration given to the need for similar restrictions on the national government. Such regulation of provincial autonomy, in spite of having an important and positive objective, have not prevented instances of financial upheaval in the country as a whole.

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