Uruguayan five-year budget: more spending, worse future

Homeless illustration

porEditorial Team

Uruguay

The predation of the State is on the rise

The new government of Frente Amplio presented the budget for its term until 2029. CERES has already analyzed it and found serious inconsistencies. I am adding my analysis from the perspective of liberal policies, since the foundation of the executive's plan will bring more poverty to Uruguayans.

With the five-year budget of Frente Amplio just presented, the Center for the Study of Economic and Social Reality (CERES) published a brief but forceful analysis.

There, technical discrepancies, contradictory assumptions, and the unfeasibility of compliance are pointed out, beyond the increase in spending.

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From the perspective of the Austrian school and in light of the Argentine experience under Javier Milei, this budget condemns Uruguay to weak growth and loss of regional competitiveness.

Real wages will be worse. I am afraid that in these 5 long years we will stop being "Gardel" in the region and we will be even poorer.

The impossibility of state efficiency

In 2019 I presented at the National Academy of Economics: it is theoretically impossible for the State to achieve efficiency when managing other people's resources.

Milton Friedman explained it: when someone spends other people's money on others, there is no incentive to do it well. It doesn't matter how honorable the ruler is, resources are wasted.

This point connects with Ludwig von Mises: the engine of the economy is individual action. When the State expropriates resources through taxes and redistributes them according to political criteria, it not only limits that action, it also degrades the efficiency of the system.

Friedman's four ways of spending

The State systematically incurs in the two worst: spending other people's money on others, which leads to waste, and spending other people's money on oneself, where the distributor keeps the best part.

Uruguayan five-year budget: more spending, worse future

Homeless illustration

porEditorial Team

Uruguay

The predation of the State is on the rise

With the five-year budget of Frente Amplio just presented, the Center for the Study of Economic and Social Reality (CERES) published a brief but forceful analysis.

There, technical discrepancies, contradictory assumptions, and the unfeasibility of compliance are pointed out, beyond the increase in spending.

You may also be interested in...

From the perspective of the Austrian school and in light of the Argentine experience under Javier Milei, this budget condemns Uruguay to weak growth and loss of regional competitiveness.

Real wages will be worse. I am afraid that in these 5 long years we will stop being "Gardel" in the region and we will be even poorer.

The impossibility of state efficiency

In 2019 I presented at the National Academy of Economics: it is theoretically impossible for the State to achieve efficiency when managing other people's resources.

Milton Friedman explained it: when someone spends other people's money on others, there is no incentive to do it well. It doesn't matter how honorable the ruler is, resources are wasted.

Friedman's four ways of spending

Example: the Uruguayan president receives more than 14,000 dollars per month, the highest presidential salary in the region. Javier Milei, meanwhile, earns about a fifth of that amount, despite currently leading the economy with the best performance, less poverty, and 6% annual growth.

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Impossibility of efficiency with government spending

I titled my presentation: "Less spending for better lives", in line with the IDB report (2018). Uruguay was wasting 3.7% of GDP due to inefficiency in public spending. Five years later, nothing indicates that it has improved.

CERES's analysis: more spending, less investment

The budget assumes that GDP will grow at 2.4% annually until 2029, double the average of the last decade. However, that growth depends on investment, and in the presented plan that item is lower.

According to the Austrian School, only private investment financed by voluntary savings can sustain growth. Betting on government spending is repeating the mistakes of the past.

Inflation drawn up

The budget projects inflation at 4.5% annually. Historical evidence disproves that optimism. No Frente Amplio government has met inflation targets. The projected exchange rate of $44.5 per dollar by 2029 seems more like a wish than a realistic projection.

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Argentine evidence: less spending, more growth

With a drastic spending adjustment, Javier Milei managed to reverse the fiscal legacy: deficit eliminated, financial surplus, debt reduced by 50 billion, inflation controlled, and 6% growth. The Austrian thesis is confirmed: when resources are freely allocated, the economy grows.

Conclusions: budget without respect for private property or freedom

Historical experience and theory agree: it is not with more public spending that a society prospers, but by allowing resources to remain in the hands of those who generate them. That is true solidarity: voluntary solidarity.

Since the constitutional reform of 1967, the political system has monopolized solidarity, robbing citizens of that right and leaving the care of the humble in the hands of indifferent bureaucrats.

For solid growth, it is necessary to: clean up the macroeconomy, reduce spending, balance the accounts, and allow wealth to remain in the hands of workers, who know best how much it cost them to produce it.