Argentina’s wealth tax: a way forward?

Argentina’s approval of a one-off wealth tax has been presented as a model by some on the left in Britain, as well as in other Latin American countries – where the idea is very popular. What is its real content, however, and is it a useful proposal to deal with the crisis of capitalism and the impact of the COVID-19 pandemic?

On 11 December, the Argentinean senate passed a new tax on the very wealthy, which had already been approved by congress previously. The tax will affect about 12,000 of the country’s richest people, with assets worth over 200 million pesos (US$2.3m). Of those, a small minority of 380 ultra-rich people have assets worth over 35 million dollars! According to the government, 42 percent of those affected by the tax have their assets in dollars and 92 percent of those dollar-assets are held abroad. The starting rate of the tax will be 2 percent for assets held in the country, rising to between 3 to 5.25 percent for those holding assets in dollars abroad. Those who repatriate their assets held abroad within 60 days will benefit from a 30 percent discount. The government has calculated that the new tax, known as the Solidarity and Extraordinary Contribution, will raise US$3.5bn.

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The role of the right and its historical hypocrisy

As would be expected, the Argentinean capitalists and the political representatives of right-wing parties in congress and senate fiercely opposed the wealth tax. The powerful bosses’ organisation, Asociación Empresaria Argentina (AEA), said that it "affects private property, hits investment, production and jobs and creates great anxiety” – anxiety for the rich of course, not for the poor!

This is nothing new. These comments represent the mentality of a bourgeoisie that was born old, lacking the vigor to develop the economy in the country, which ended up associated with large foreign monopoly capital. The rentier Argentinean ruling class is markedly parasitic.

There is an old debate that not only runs through a part of the left, but even Peronism in historical terms, about whether it is possible to “domesticate” the oligarchy and generate or empower a thriving bourgeoisie. This, by the way, is something that Kirchnerism gave up on a few years ago. In their view, it is the state that must carry out certain tasks that the national bourgeoisie evidently is unable and unwilling to do.

“We can say that the national bourgeoisies of the backward countries represent a dwarf next to two giants, which are the ones who are really in struggle; on the one hand, imperialism, and on the other, the revolutionary rise of the popular masses. The end result of all this is that the bourgeoisies of the backward countries cannot give the people even the modest institutions of bourgeois democracy. Hence the appearance of pressure groups, and even, although the term is debatable from the point of view of political science, power groups.” (Silvio Frondizi, The Argentine Bourgeoisie, 1964)

But let's go to the actual statements of the right. Luciano Laspina of the PRO questioned the project, since it enshrines a “logic of shooting in the feet the businessmen who have to push the car out of the pandemic". He goes on to say: "the tax is confiscatory because there is an absorption by the state of a substantial part of income or property" and "the emergency does not enable a violation of the National Constitution."

The Together for Change bloc warned that this "confiscatory tax" will “hamper business investment”. MP for the bloc, Mario Negri, declared that: "Of all the countries in the region, we are the most intoxicated by taxes on the private sector."

Mendiguren, former ally of Kirchnerism in the bosses’ organisation UIA, stated: "I do not agree with taxing the same assets which are involved in production. This would be paying three times over for something that today is a national asset: the productive instruments of Argentina, which today we all need to be able to export more.”

In reality, we can find many statements from different businessmen and political representatives resisting the tax, based on the idea that it damages investment. Most of the business community tried to stop the passing of the wealth tax.

The Business Convergence Forum (FCE) declared that the mere fact of debating the idea is “nonsense”, and that: “It is surprising that, at a point when it is necessary to promote private investment to recover economic activity and generate genuine employment, the Chamber of Deputies promotes a Bill that, clearly, will generate an adverse effect, and that, when it is necessary for all of us to divert our energies towards the same goal, a discussion is introduced that once again divides Argentines.“

The arguments go back and forth. There is a "violation of the principles of legal certainty, certainty and interdiction of arbitrariness"; or there is an "impairment of the constitutional guarantees of equality and reasonableness"; or otherwise there has been a "violation of the guarantee of the non-confiscatory nature of taxes."

All the arguments are directly related to the preservation of private property of the means of production, which shows not only the reactionary nature of the elite, but also that they are accustomed to defeating the workers and the poor. The big bourgeois are habituated to preserving their property over the interests of the many.

Even in the latest statements, after the passing of the wealth tax, some businessmen are trying to argue that the resulting losses of the bosses should be shared together with the workers! In reality, what we can expect from the big employers is a greater offensive in 2021. The budget sent by the Fernández and Fernández government to parliament, indicates as much.

This scandalous position reveals the real character of the parasitical capitalist class. In the midst of a pandemic and deep recession in the economy, with millions of families suffering poverty, a small minority of the ultra-rich feel “anxiety” at being taxed a small percentage of their enormous wealth! Surely, the interests of the majority, and the protection of lives and livelihoods of the many, should take precedence over the property rights of a tiny, privileged minority that has amassed enormous amounts of wealth off the labour of workers – as well as through financial gambling, currency speculation, etc.

The big bourgeoisie evade taxes: the cases of France and Uruguay

On different occasions, we have seen governments and capitalist states opt for the use of wealth taxes. In the last instance, the state is the state of entrepreneurs and bankers; and of the large landowners. The introduction of a wealth tax is only done as a last resort and in extraordinary times of crisis, such as the current one, with the ultimate aim of rescuing the capitalists and their regime.

The capitalists, in general, will always try to make the workers pay for the crisis of their system. In conditions of exceptional crisis, there might be some, more far-sighted sections of the capitalists who will argue for a wealth tax. In order to save the system, the so-called “millionaires for humanity” have requested: “Please. Tax us. Tax us. Tax us. It is the right choice. It is the only choice.”

francois hollande sad lgr Image Matthieu RieglerThe disaster of Hollande's 2012 supertax shows that the rich always find ways to protect their fortunes / Image: Matthieu RieglerIf previous experience with wealth taxes is anything to go by, the rich will find ways of evading this tax, through clever financial “engineering”, moving their tax residences abroad, etc. This is exactly what happened in France when the Hollande-led Socialist Party government attempted to introduce a similar tax on the rich. The “supertax” introduced in 2012 imposed a levy of 75 percent on individuals earning more than one million euros annually. The tax immediately led to an exodus of the wealthy, with high-profile cases like actor Gerard Depardieu who moved his tax residence to Russia. France’s richest man, Bernard Arnault, owner of luxury goods empire LVMH Moët Hennessy-Louis Vuitton SE, moved to Belgium. Meanwhile, the former CEO of L'Oréal, Lindsay Owen-Jones, settled in Switzerland. The neighbouring countries of France received numerous applications for residence in the last months of 2012, with about 2,000 French officially settling in Belgium. Many others followed them by moving their tax residences to Belgium, Luxembourg, London or other countries. Finally, in 2015, Hollande abolished the tax.

In the case of Argentina, there has already been an increase in applications for Uruguayan citizenship, where the tax regime is much more favourable to the capitalists. There is, for example, a five-year tax exemption for companies that settle in Uruguay. Already, in 2020, some 200 Argentine companies asked to settle in the neighbouring country, most of them in the technology sector. There is the case of the eCommerce company Mercado Libre, whose CEO Marcos Galperin maintains his tax address in Montevideo.

The statements of Luis Lacalle Pou, President of Uruguay, anticipated that he plans to relax regulations further to attract Argentine businessmen, with the intention that they take their money to the neighbouring country.

With these examples we see that entrepreneurs have a number of means to avoid taxes and levies on their large fortunes. In addition to the threats before and after the parliamentary approval of the Argentinean wealth tax, now a wide layer of businesses have declared their intention to appeal to the courts to challenge the tax. Thus, a new chapter of the confrontation is being prepared.

The wealth tax as a smokescreen

The 2021 budget is being discussed via the same quick procedure by the two chambers. In general terms, this is an austerity budget that is being agreed with the International Monetary Fund as part of the renegotiation of an IMF loan. The forecast of five percent growth in 2021 clashes with the forecasts and perspectives of the World Trade Organisation, not only for the region but also for Argentina, which predicts an impact on the country of minus five percent.

In 2020, the Argentine Central Bank (BCRA) issued close to two trillion pesos to assist the Treasury (seven percent of GDP), which will register a record primary deficit of eight percent of GDP. Despite the fact that the Central Bank absorbed a good part of this expansion via LELIQs (liquidity bills) and passive repos (short-term borrowing), another portion of the excess pesos was transferred to the official and parallel exchange market. In response, the gap skyrocketed, exceeding 100 percent for several weeks, and net reserves went below the US$ 4.5 billion mark.

Retirements and pensions represent more than half of primary spending. In this context, the new sliding scale formula for pensions proposed by the government represents a loss of purchasing power for pensioners. It will see a saving of one percent of GDP compared to the previous regime of discretionary increases linked to inflation.

The other side of the adjustment is public employees being forced into collective agreements, which represent a loss of purchasing power. To this we must add the end of the IFE and the ATP, the main social subsidy programmes that the government launched to contain the anger of working-class layers that were left without work as a result of the crisis fueled by the COVID-19 pandemic.

However, we will see how things play out in the first months of 2021. Vaccination will possibly see the end of the strict quarantining and thus the end of the IFE and the ATP. With the introduction of the new sliding scale of pensions, the elimination or reduction of other economic subsidies is up for debate. Finance Minister Martín Guzmán knows that he must take steps in all these areas in order to reduce the primary deficit from seven or eight percent of GDP this year to below four percent of GDP in 2021, as part of the agreement with the IMF.

The Fernandez government’s electoral base is amongst the workers and the poor, who possess a healthy anti-imperialist instinct, and are not especially well inclined to accept IMF-dictated budget cuts.

In this context, it is clear that the timing of the wealth law was a demagogic gesture towards the kirchnerista ranks to distract attention from the concessions being made to the IMF. The tax was discussed in congress on 17 November, coinciding with the peronista Day of the Militant (marking Peron’s return to Argentina in 1972), and was celebrated by large demonstrations on the streets. Of course, the workers and the poor in Argentina would be enthusiastic about the idea of making the rich pay for the crisis and the COVID-19 expenses, but is this really what this tax is about?

The law introducing the new one-off wealth tax did not just deal with the actual details of the tax, but also included the allocation of the money raised. Herein lies an important flaw of this tax. While a large percentage of the tax’s revenues will be used for COVID-19 medical spending (20 percent), social spending in poor neighbourhoods (15 percent) and higher education and professional training PROGRESAR grants (20 percent), a substantial part will go towards subsidies to companies affected by COVID-19 (20 percent) and subsidies to the YPF gas company for fracking exploration (25 percent). The indirect subsidies to the YPF are significant, as this is a privately-owned company, in which the state has a majority share, but in which private shareholders have a 49 percent control. This means, in effect, that the state is injecting money into the company, 49 percent of which will benefit private investors. Taken overall, about 45 percent of the total money raised by this new wealth tax will go back into capitalists’ pockets in one way or another.

The new tax is a personal tax, which therefore leaves out the big banks and corporations, which amassed massive profits in the last few years, while the workers were being made to pay for the crisis.

The use of parliament by the bloc of revolutionary tribunes

As revolutionaries we are not against participating in parliament. But we must recognise that parliament is a rarefied environment for the interests of the working class, in addition to having hundreds of rules and regulations that hinder any project that could represent a real step forward for their interests.

So in general, if we take the case of the Argentine Parliament, if the left deputies want to present a project in the lower house, this must obtain the support of half-plus-one of the members of the relevant committee. This is unlikely in such an environment.

Congreso Nacional Buenos Aires Image Jacobo TarríoBourgeois parliament is filled with mechanisms to prevent the workers' interests being heard / Image: Jacobo Tarrío

But following the logic of the twists and turns of the bourgeois parliament, the package project presented for the wealth tax was sent by the executive directly to the chamber. This means it could not be discussed in a committee beforehand and therefore, had to be voted through en bloc and without the possibility of being amended.

In reality, for the revolutionaries, it only remains to denounce the reactionary class character, not only of the anti-democratic obstacles put in place by the mechanisms of the parliament, but specifically the limitations on the work of minorities within parliament. In addition, the projects in general coming out of parliament are detrimental to the masses, putting down in writing the basis to exploit them further. If there is any room for progress arising from parliament, it is only due to the enormous mass mobilisations that have been going on for years, and whose magnitude forces political representatives to take up their demands and even approve them.

In these conditions, while criticising the scandalous position of the right wing against the wealth tax, the left deputies had no other alternative but to abstain, as they couldn’t vote for a law that hands over 45 percent of the amount raised by the tax back to the capitalists.

Prepare for struggle

Argentina is in the midst of a deep economic crisis, with growing levels of poverty and unemployment. According to official figures, 40.8 percent of the population live under the poverty line, with unemployment having risen to 10 percent. Over two million people have fallen into poverty since the beginning of the pandemic, a figure that could have been higher had it not been for the government’s social plans. The OECD forecasts a collapse of the Argentinean economy in 2020 of 12.9 percent.

In these conditions, it is not surprising that the idea of taxing the ultra-rich is very popular. According to a poll by CELAG, over 76 percent of the population in Argentina support the tax. This idea also has overwhelming support in other countries of the region where it is being considered, with approval rates of between 64 and 75 percent in Chile, Ecuador, Mexico, Peru and Bolivia.

In summary, while socialists are in favour of a progressive taxation system (where those who earn more pay more) based on direct taxation rather than indirect taxes (like VAT), it is clear that taxing the rich is not really a solution to the central problem which is raised. Namely, where to find the necessary money to pay for healthcare, education, pensions and the social spending necessary to protect and improve living standards.

Rather than taxing the rich, the solution is to expropriate the means of production that they own (which they cannot take away to another country) so that the wealth of society, created by workers, can be used as part of a democratic plan of production to satisfy the needs of the many.

2021 heralds a turbulent year. We will see the mobilisations against growing hunger, inequality and employment. We must link the concrete demands of these movements to a general perspective of a new society, one which puts all the economic, industrial and rural resources in the hands of the workers themselves.

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