Chainsaw: The government has managed to cut subsidies by 60% so far this year

Chainsaw: The government has managed to cut 60% of subsidies so far this year

porEditorial Team

Argentina

The reduction in spending on energy, water, and transportation fees allowed the fiscal surplus to be maintained

Javier Milei's government implemented a real cut of 60% in spending on tariff subsidies during the first six months of 2024.

The adjustment to public services was one of the central pillars to sustain the fiscal surplus in the first half of the year.

How the sharp drop in subsidy spending was explained

According to the Interdisciplinary Institute of Political Economy (IIEP) of UBA-CONICET, spending on energy tariffs reached $3.1 trillion at July constant prices, well below the $7.1 trillion accrued in the same period of 2023. This represents a 57% real year-on-year drop.

One of the factors explaining this decrease is the reconfiguration of user segments: about 2 million households were reclassified as high-income, so they stopped receiving full subsidies.

Motosierra: el Gobierno logró recortar el 60% de los subsidios en lo que va del año

The IIEP report also indicates that, in terms of 12-month accumulation, subsidies fell 60% compared to January 2023 and 74% compared to the peak recorded in July 2022.

The impact on households and the spending scheme

Despite the cut in public spending, the cost of public services for AMBA families increased nearly sixfold since December 2023, rising 597% compared to accumulated inflation of 154% in the same period.

Currently, on average, households pay tariffs that cover 50% of actual costs. The rest is absorbed by the State, although coverage varies between sectors and types of service.

Fiscal balance: fewer subsidies, more spending on pensions

The Argentine Institute for Fiscal Analysis (IARAF) revealed that, on a cash basis, subsidies for energy and social programs were the items that fell the most, with real decreases of 62% and 32% respectively. These reductions made it possible to offset the increase in spending on contributory pensions and retirements, which rose by 22.6% in real terms year-on-year in the first half.

According to the IARAF analysis, the drop in subsidies and social programs accounted for 99.4% of the increase in pensions accumulated through June.