President Luis Lacalle Pou announced that it will apply a tax cut if the growth projected at the beginning of the year is exceeded in 2022. The sayings generated a reaction from the president of the Exporters Union (UEU) and a debate among economists about consistency in managing macroeconomic policy.
The president reiterated that election campaign promise at the press conference he held this Thursday after the Council of Ministers approved the pension reform.
“In the Commitment for the Country (a document agreed upon by the coalition in the electoral campaign) there is talk of a reduction of the IASS (Social Security Assistance Tax)”, said Lacalle Pou. He then she mentioned a “pact” that he has with the Minister of Economy, Lily Arbeleche. “If (economic) growth exceeds 3.8% This year, part of that growth above the planned rate will be used to reduce the IASS and part to reduce personal income tax (Income Tax on Individuals)”, he stated.
A projection of the economic team carried out in February of this year indicated that the expansion of the Gross domestic product (GDP) would be 3.8% in 2022. The latest Rendering of Accounts improved the forecast to 4.8%. In as much, the majority of the private analysts handles a floor of growth of the activity for this year of 5%. That growth will then allow the reduction of the two taxes announced by the president.
However, the announcement was not well received by the president of the Union of Exporters, Facundo Marquez.
Camilo dos Santos
Facundo Marquez, President of the UEU
“I am not seeing a coherent plan. Increase in the monetary policy rate (contractionary policy) versus decrease in IASS and personal income tax (expansionary policy). Wherever you look, loss of competitiveness that will end up affecting employment and growth, ”she wrote on his Twitter account.
crossover of responses
Through the same social network, he received a comment of support from Martin Vallcorba, advisor to the Ministry of Economy and Finance during the governments of the Broad Front. “I agree with the president of the Union of Exporters. The president’s announcement is frankly inconsistentboth from the point of view of macroeconomic management, as well as with respect to the priorities of public spending and intergenerational equity”, he replied.
Diego Battiste
Martin Vallcorba
“Inconsistent in macroeconomic management: expansionary fiscal measures are announced together with a monetary policy that becomes more contractive. Also, based on ‘higher growth,’ which is not genuine 2022 growth, but a measure of statistical drag,” he continued.
“It would seem that the concern for the structural fiscal result of the fiscal rule was left by the wayside or in the discourse. And to assume (and hope) that a measure of this type, which affects the structural fiscal balance, should have a prior opinion of the Fiscal Advisory Committee”, Vallcorba pointed out.
There the CPA Ferrere economist intervened Alfonso Capuro. “The CFA (Tax Advisory Committee) does not have the authority to assess policy impacts in terms of equity or income distribution. Notwithstanding the foregoing, the CFA has ruled on the importance of maintaining the structural approach to public finances”, he expressed on the same social network.
In a July report, the CFA made considerations in this regard. He explained that in “a context in which the activity is close to the potential product in an international scenario with signs of reversal, the CFA points out the importance not only of supporting a structural approach, but also of adopting a criterion of prudence when evaluating economic policy measures with a permanent impact on spending and/or income”.
DGI
The former intendant of Financial Regulation of the Superintendency of Financial Services of the Central Bank (BCU) and professor of Microeconomics, Joseph Lycandro, also responded to Márquez. “I think that a measure in the monetary field that by definition is transitory and aimed at lowering the high inflation that we have, is not comparable with another in the fiscal field that is permanent. In addition, this reduction must respect the fiscal rule, so it cannot be very expansive, ”he indicated.
Then the economist and partner of CPA Ferrere gave his opinion Gabriel Oddone. “In the 1990s, the stabilization plan with an exchange rate anchor, insufficient fiscal effort and falling inflation-indexed wages caused extraordinary pressure on the RER (real exchange rate). The story didn’t end well,” he summed up.
