Argentina will end 2025 having achieved a crucial stabilization in its main macroeconomic variables: controlled inflation, stabilized exchange rate, and orderly public accounts. This achievement is fundamental, as it establishes the basis for greater predictability for the coming year.
While stabilization has brought certain positive and negative consequences in the social sphere, it must be understood that an ordered macroeconomy is a necessary but not sufficient condition for the economy to grow sustainably and for that growth to translate into a perceptible improvement in the purchasing power of citizens.
We could state that the macroeconomic structure set by the government of Javier Milei is, in general terms, "solid". However, this solidity is conditioned upon the commitment to carry out deep structural reforms, replacing outdated regulatory frameworks with modern schemes. Given the favorable political context of the ruling party in Congress, it is imperative to make the most of the opportunity, seeking alliances to achieve the necessary consensuses that allow the democratic implementation of the reforms that the local economy needs to emerge from the stagnation of recent years.
The Axis of Structural Reforms
The essential reforms to trigger local economic growth cannot be isolated; they must be conceived as a unique and integrated package. Implementing one reform without the others could dilute its impact or, worse yet, exacerbate initial problems.
The three interdependent reforms are: Labor Reform, Pension Reform, and Tax Reform.
1. Labor Reform: Modernization for Productivity
The concept of labor reform in Argentina is often perceived negatively in certain social sectors. However, a rigorous analysis must focus not on the elimination of acquired rights but on the flexibilization and modernization of labor contracts.
The existing labor laws date back to past economic contexts and are inadequate for today's global economy, marked by technological advances and changes in production capacity and methods. Operating with an outdated legal framework (illustrated by the analogy of working with an obsolete operating system) prevents the use of modern tools, which inevitably generates lower productivity and inefficiency.
The reform should aim to generate incentives for employers, stimulating the creation of more registered jobs. Under the Law of Supply and Demand, the increase in registered employment and greater demand for labor will lead to better wages. A flexible labor system would allow 50% of workers who are currently informal to register, guaranteeing them the enjoyment of their rights (health insurance, bonuses, vacations, among others) and, crucially, their contributions to the pension system.
2. Pension Reform: Sustainability and Justice
The Pension System (ANSES) is structurally broken, with pension salaries well below average. It is currently financed not only by contributions from registered workers but also by general taxes such as VAT, Income Tax, and the debit and credit tax, among others.
The Labor Reform has an indirect positive impact on the pension system by increasing the base of contributors. However, a direct Pension Reform must complement this effect to ensure long-term sustainability and improve pension benefits.
A rigorous pension reform should consider:
Diversification of Funding Sources: Reduce dependence on distorting taxes (like VAT) and optimize collection of direct contributions.
Adjustment of Sustainability Parameters: Evaluate and, if necessary, adjust parameters such as retirement age or years of contribution, aligning them with current life expectancy and demographic trends.
· Mixed pension system: In which a part of salaries is the responsibility of the State with what it collects and another part is capitalized through contributions throughout a person's life in different financial instruments to form part of their retirement. (This system is used in the Netherlands, Sweden, among others).
Redesign of the Mobility Formula: Establish a formula for adjusting benefits that is fiscally sustainable, protects the real value of pensions, and avoids current underfunding or the need for discretionary corrections.
With the Labor Reform increasing system revenues, a well-designed Pension Reform would allow retirees to obtain a salary higher than the current one.
3. Tax Reform: Simplification and Productive Stimulus
Finally, the Tax Reform must be the corollary of the two previous ones. With a revitalized formal labor market and a more solvent pension system, the government (at its three levels: National, Provincial, and Municipal) must reduce taxes that impact directly or indirectly on the labor market and productivity.
The objectives of this reform should be:
Reduction of Labor Costs: Decrease social charges and labor taxes to reduce the cost of hiring.
Incentivizing Investment: Lower taxes on production and investment to generate a reduction in production costs.
Deflationary Impact: The reduction of operational and employability costs will translate into a reduction in the price level of goods and services, improving the purchasing power of the population.
Conclusion and Role of the State
If these three interrelated reforms are carried out comprehensively, the Argentine economy could grow significantly, resulting in a better quality of life for all citizens: lower taxes, greater productivity, more genuine investment, and better wages.
From a fiscal perspective, the State would experience lower direct revenue due to the tax cuts. However, it would also have lower social commitments arising from poverty and informality. The role of the State must transform, remaining only with an efficient regulatory role in the market and a focused interventionist role in the most vulnerable social sectors, providing monetary support and social tools that ultimately allow them to become self-sufficient.
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