With the exception of some seasonal movements, such as in the case of income tax revenue or the decrease in transfers to the treasury by the Sustainability Guarantee Fund (FGS), due to the poor performance of the low-risk stocks in which the fund itself invests, the consolidated information for the second quarter of the year does not show major changes with respect to the trend that had been exhibited in previous quarters.

On the other hand, the battlefront to which most analysts direct their questions, and which the presidential candidates have preferred to remain silent, has to do with issues of monetary and exchange rate policy. That is, the already mentioned topics of: stocks, exchange rate lag and terms of a possible negotiation with the holdouts.

Assuming that all candidates' teams behave rationally (i.e. that they have all planned a strategy in case of being elected), the reason for this silence may possibly be not only due to electoral issues, but also to keeping all available options open; a point that has been simplified in the media in the discussion. shock o gradualism.

An even more sensitive issue than the three previous topics, and which has to do with the content of our report, concerns the diagnosis and subsequent solution that will be given (or not) to the fiscal deficit. In this regard, in our economic reports on monetary policy we have been showing that the general scenario is one of fiscal dominance.

That is, a scenario in which the treasury plays an increasingly decisive role as a source of monetary expansion. To illustrate the above, the transfers from the BCRA to the treasury last year totaled $79.480 billion, more than double the amount recorded in 2013, which amounted to $34.769 billion. By definition, these transfers represent monetary expansion.

However, this is not the point, it is merely the context that very generally characterizes the link between monetary policy and fiscal policy in the current situation.

The key issue is how to maintain the general level of well-being of the population and increase it over time. From this perspective, the scarce public debate on the level of the deficit also seems to be simplifying into a sharp dichotomy between whether or not to adjust spending.

It is true that one of the alternatives to reduce the deficit is to directly reduce public spending; there is not much that is complicated about that definition. 

But for the same reason, it is also entirely correct to say that another alternative is to increase income; and a third alternative is to reorganize spending so that it generates positive effects on economic activity as a whole.

Thus, conditional on the existence and access to external financing sources, both the reduction of expenditure and the increase of income financed by debt are short-term alternatives to reduce the public deficit. However, and as with everything in economics, each measure has its costs.

Broadly speaking, the first would be supported in the future tense, returning the capital borrowed and paying the corresponding interest, as well as with the fulfillment of conditional clauses, if any.

The second would be supported immediately, and everything depends - in the first instance - on where and how much spending is adjusted, and subsequently, on the margin that agents have to transfer their costs to other agents in the economy.

Without any political restrictions on the part of society, it is unquestionable that choosing some form of indebtedness This would be the least costly option in political terms for any of the candidates who were elected. The reason is simple: if there were a problem, it could be carried over into the future with the intention (or hope) of correcting it as we go along.

Moreover, from the point of view of any candidate, it seems to have an additional advantage: once the population begins to feel the immediate effects of the increased flow of resources, criticism of these measures loses force. At least, until further payment.

We are left to analyse the other two options. At the current level of tax pressure, it is difficult to increase state resources by raising taxes even further.

The conflict over the tax base of the income tax, a topic that has appeared in the speeches of all the presidential candidates, seems to be a good example that this path is no longer feasible.

Which brings us to the option of simply increasing resources, that is, to the desirable scenario of the state as a promoter of economic growth, and even more desirable, development.

The problem is that these measures bear fruit in the long term. How long? At least beyond the solution of the triad of currency controls – exchange rate lag – holdouts (I repeat, assuming that they are considered a problem). But even if more jobs and economic growth were generated, this would not be enough.

For the solution to be complete, part of this growth must be able to generate tradable goods. That is, goods that generate foreign currency, with which we can import the capital and consumer goods (but especially the former) that our economy needs.

The third measure is the reordering of expenditure. The national state, like practically any organisation of considerable scale – whether public or private – probably has major operational flaws. What is this trying to say?

While the state is still fulfilling its social objective, there are possibly areas where better results could be generated with the same resources, or the same results could be generated by transferring resources to more needy areas. In this regard, in recent years some issues have gained greater visibility, such as the structure of subsidies. Others are simply intuited.

For example, in the second quarter of 2015, transfers to the private sector represented 18% of the primary expenditure of the non-financial national public sector (SPNF), positioning itself as the third item with the greatest weight in total expenditure.

In the analysis presented in our report, not only are transfers made to the private sector grouped together, but those made to state-owned companies are also included. In the first half of the year, $110.983M have been accumulated for this concept.

Of this amount, 70% was allocated to the energy sector. Part of these resources - we do not have information to specify how much - subsidize the rates of high-income households, which are not supposed to be beneficiaries of subsidies.

And of course, all the above alternatives are combinable. And not only that, most of the public discussion goes only through debating the direct effect in one measure, as if a chess game were over in a single move.

Let's go back to the example of subsidies, let's think of a hypothetical scenario: Suppose a $100 reduction in subsidies is made, let's say on gas. Now, those $100 pesos must be paid by the users; let's say Peter, Paul and John. This would be the direct effect of the measure.

However, those $100 that the state saves can now be used to subsidize, for example, the least wealthy of the three; let's say Juan.

This would be the indirect effect, should such compensation be decided upon. Unfortunately, such arguments are not common.

The craft of a good reader

Generally, the articles published on our website are of a technical nature. The aim is to provide a status of a specific topic, based on a selection of variables that seem relevant to characterize a phenomenon and, above all, observing it from the perspective of the quantitative information published on the subject.

In this post, we have thought it necessary to delve a little deeper into conceptual explanations, in light of how the current economic debate is developing.

However, all of the above is meaningless if no information is provided on the performance of the national state in fiscal matters. At best, they are opaque vessels in which the level of water they contain is unknown.

Let's move on then with what is customary and now, let's examine the consolidated information of our report. In the second quarter of 2015, the primary outcome The SPNF shows a deficit of $14.161M, which in the year accumulates a negative balance of $46.154M; that is, approximately 20 percentage points above the total deficit of last year, and with practically the same participation in the GDP of each corresponding year.

Although the current scenario for Latin American countries is one of stagnation, the trend towards an acceleration of the deficit has been recorded since 2011 onwards, without a significant rebound in economic activity.

If we add to the above the situation of real exchange rate lag, everything seems to indicate that we are indeed facing a problem, regardless of who is elected as the candidate.

In terms of tax revenues, given the strong seasonality that the series captured in the 2nd Quarter, it is difficult to predict what will happen in the following months. performance observed in the collection by income tax, it is unlikely that it will be possible to register again until the amount collected is entered in May of the following year, when companies that close their balance sheets at the end of the year release the payments for this tax. For now, the collection of profits in the II TRIM was $109.294M, of which 41% corresponded to the month of May.

For its part, the VAT collection For the first time since 2009, the nominal collection was lower than that of the immediately preceding TRIM. In the 95.790nd TRIM, this amounted to $97.861M, while in the XNUMXst TRIM it was $XNUMXM.

Of course, although the latter does not imply a trend, when looking at the actual tax collection, this is the fifth consecutive TRIM in which the interannual rate does not exhibit positive growth ratios.

Regarding the main expenditure items, it is worth clarifying that at the end of June and December of each year, the balance of the social security system It records an abrupt increase in expenses over income; and the following month the opposite effect occurs, although to a lesser extent.

The novelty of the II TRIM is that the level climbed beyond its historical trend, registering a deficit of $26.614M, which represents an interannual growth of 138,31%.

Another of the main expenditure items are the subsidies and capital transfers as discussed in previous paragraphs. In this regard, the slowdown is notable, with only 12% growth compared to the same TRIM of last year. Finally, the third most important item is the automatic transfers to provinces.

Little can be added to these, since they are tied by law to the performance collection of shared taxes.

To gain further insight into this state of affairs, we invite you to further analyze the data on the performance of the national government in the second quarter of the year by reading our quarterly economic report, which we have made available for download below.