Argentine President Javier Milei delivered a political speech to Congress on Sunday in which, although he did not detail next year’s budget, he nevertheless put forward an innovative aspect: zero deficit at all costs.
If revenues are higher than expected, only expenses automatically indexed to inflation and other variables, such as pensions, will increase, but the rest of the items will be frozen. If the libertarian economist, who theoretically does not believe in state intervention, considers that the increase in tax revenues is structural, then he will lower taxes. In the past, he promised to eliminate withholding taxes and taxes on financial transfers. If revenues are lower than expected, then all expenses will decrease. Everything is to have a budget surplus and pay the only expense he does not intend to touch, debt repayments.
This is a novelty because budgets have always predicted such income and expenditure, but if more was collected, more was usually spent and if less was received, taxes were increased (Milei considers them theft, despite the fact that developed economies used to redistribute wealth and improve their societies), adjust spending (which the head of state is willing to do), issue currency (a tool used not only by Peronism, and which is not harmless despite what former president Cristina Fernández de Kirchner says, nor the only reason for inflation, as Milei reads in his speech) or go into debt (as Luis Caputo, current Minister of Economy, did when he was in charge of the Ministry of Finance in the Mauritian Macri government).
The President ruled out raising taxes because he claimed that Argentina was the country with the highest tax burden in the world, something that statistics deny because they place the nation in 43rd place. He even pitied the millionaires who emigrated, like Marcos Galperin and many others, in the previous government, because of the increase in property taxes, which he and the dialogue opposition have now lowered, and for the extraordinary contribution due to the pandemic: “They end up with the expulsion of compatriots due to prohibitive taxes.”
Milei also ruled out the possibility of continuing to use the printing machine for banknotes or debt. One because it impoverishes today’s Argentines and the other, those of tomorrow – but not tomorrow, given that the interests and the principal payments are paid. In fact, in January and July the first repayments of the debt left by Caputo and restructured by Martín Guzmán, Minister of Economy of the previous government, are scheduled.
It is true that Argentina no longer has access to debt markets and cannot afford to issue money in the face of such inflation. That is why even Juan Grabois proposed a zero deficit during his pre-candidate campaign for the presidency. The question is how to finance it. But it is surprising that a proud economist like Milei denies to Congress the possibility of pursuing a countercyclical policy in the event of an economic collapse. This is to deny one of the tools of any developed economy, but it would perhaps amount to admitting that John Maynard Keynes, its repudiated, was right. The libertarian prefers to quote Milton Friedman several times in his speech, repudiating public spending and taxes. The fact that Argentina can no longer pursue a countercyclical policy does not mean that it should tie its hands forever. The fact that today it cannot issue currency does not mean that these are not the same businessmen who asked during the quarantine to use the machine to pay their employees’ salaries.
2025 Budget Projections
Apart from the speech that left the general guidelines, the Palacio de Hazando published a summary of the budget a few minutes later. It did not make the entire bill public. “The GDP is expected to grow by 5% by 2025,” reported Economía. The national and international banks and consulting firms surveyed by the firm FocusEconomics predict, on average, growth of less than 3.5%. But where they differ most is the inflation forecast: Milei and Caputo predict 18.3%. But the market, in which the president has so much confidence, is at 67%. The president and his minister see the dollar in December 2025 at $1,207, but the banks and consulting firms see it at $1,738.
“The national public sector budget for the 2025 fiscal year is expected to show a slight surplus in terms of GDP. The primary result would reach 1.3% of GDP,” the ministry said. “Since 2014, no balanced budget has been presented to the National Congress. Furthermore, since 2010, no annual budget surplus has been achieved, and since 2008, two consecutive years of financial surplus have not been achieved. The estimated total resources reach 16.5% of GDP, while total expenditures amount to 16.5% of GDP,” Caputo’s portfolio completes.
Milei argued that the zero deficit rule aims to “protect the balance forever, force the State to take matters into its own hands and if permanent improvements are made, it must return them to society with tax cuts.” “Reducing the State is expanding the Nation,” he said, just as Álvaro Alsogaray had proclaimed in the 1989 elections, when he came third but his economic program ended up being executed by the winner, Carlos Menem.
The president called for an “honest debate on the issues the state should address.” “She is the babysitter, from food to entertainment,” she said. He warned that there is “poverty, illiteracy and hospitals without supplies,” while spending is on “recitals, media, roads that lead nowhere and useless laws.” According to him, the national state should only assume three functions: macroeconomic stability, “the rule of law,” that is, the “defense of life and property” and “defense against external attacks.” Three ministries: Economy, Security and Defense.
It is not for nothing that Caputo’s portfolio stated, when communicating the budget, that in 2024 it was dedicated to the “recovery of defense and security capabilities” and “social support without intermediaries.” As reported by elDiarioAR, despite the almost general adjustment of spending this year, some sectors have spent more than in 2023. It is true that the Universal Child Benefit (AUH) has increased and that they have eliminated plans that involved social organizations such as participation in soup kitchens – Yes, now they channel it through the Conin Foundation and the Catholic and Evangelical churches, but it is not true that the amount of the Alimentar Card has increased. It is true that they have given priority to the Joint Chiefs of Staff and the Intelligence Secretariat (SIDE), among other items such as the expenses of the Ministry of Economy itself, while others have been relegated such as pensions, universities, school books, medicines for cancer patients or the maintenance of trains.
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