3/4/2022 - Politics and Society

Subsidy to wealth

By Horacio Gustavo Ammaturo

Subsidy to wealth

The subsidies are stimuli that one part, usually through the State, confers the other so that artificially it is impulse to economic activity. They can be consumer-oriented, when consumers receive or produce when the production device is the receiver.During pandemic, the product of the Covid-19, we were witnesses of publications and discussions in the media and social networks on the assistance that the national government gave to companies whose shareholders have the resources to face adverse transitory circumstances.

Within this group of large companies are mentioned to an open television channel whose owner is the fourth largest media conglomerate in the world. Some of the country's most prestigious newspapers took advantage of the opportunity to grant wages to include the monthly income that in their employee roles perceive their directors and shareholders. Even one of the largest groups in terms of stock exchange capitalization after firing part of their workers received allowances for paying wages, even if their CEO is listed among one of the largest fortunes in the world.

The large economic groups receive different types of benefits from the state which could well resemble subsidies.

Let us describe some of the ways in which the rich feed on the energy of the state, also financed by the poor through the taxes that tax their consumptions.

Although the proverb says that to show just one button, in this case we will enunciate several in example mode.

Monopolies

The concentration in the supply of essential goods and services and mass consumption, such as food, medicines, personal hygiene and cleaning products, allows companies that offer them to fix prices depending on what the demand can pay more than on costs, maximizing the benefits. The monopolies associated with regulators and competition control bodies and inefficient consumers are a real grant that we all finance in each of our contracts.

Market Reserve

As with the monopolies where one or few are the offerings, there is also the monopsonio which is another form of imperfect market in which there is one or few buyers for products offered by many producers. Consequently, demand assumes a dominant position by means of regulations the State makes, and fixes prices to the detriment of small and disorganized suppliers. A case where the State promotes the necessary environment for these informations was given at the price of the chatter in our country. It is known that it is a fundamental input for the large casting furnaces and that there is only one pair of them in our country. For decades, the export of annoying was prohibited, allowing the few existing foundries to fix the price that never exceeded the third of the value of the international market, while the finished product from these inputs exceeded the international value, leaving impossible margins to obtain in normal situations the companies and forcing local customers to pay far above the reference prices in the world. Similar situations occurred with other products such as sugar.

Measure infrastructure

The National State has built electrical infrastructure, roads, ports and distribution centers with specific target for the support of private companies. For example, between 1969 and 1970, the government had approved the Aluminum Industry Development Program that included three important works: a primary aluminum production plant in Port Madryn that would be carried out with private capitals, but all the necessary works for its operation were carried out with public contribution, a hydroelectric plant on the Futaleufú river to make the plant and a deep water port, within the New Gulf. The entrepreneurial risk has been replaced by State support and investment and the costs of the fundamental production factors of this industry are subsidized by public archae.

Energy prices

It was the vocation of all the governments of our country to intervene in energy prices. Without going further today we have two references of the intervention to support large companies. On the consumer side, the cost of gas, electricity and fuel supplies was fixed. Through the offer, setting minimum prices to ensure returns on the investments of companies. In this way, it supports large consumers and giants of the oil industry, all of this obviously with the money of the state.

Change Types Differences

Maybe this is the favorite allowance for the rich in Argentina. While agribusiness producers complain about the claims and exchange rates for the liquidation of their operations, the importers of goods and services produced abroad have reference values smaller than the rest of the economy. Large entrepreneurs have access to more sophisticated mechanisms to acquire currency in times of turbulence, thus protecting their assets against economic crises. The tax on the purchase of currencies is a tribute to the middle class, because the rich acquire currency in other ways. But, without a doubt, the exchange rate unfolding brings to the greatest of the subsidies that receive the rich who is the nationalization of the private debt contracted abroad. While a person wishing to acquire currency for harassment must pay a 30% tax, or a local company must cancel a locally contracted debt in dollars must resort to the settlement market and pay 70% more than the official exchange rate, a company that has an external debt may access the official market of changes acquiring a lower value to the currency sought. In fact, the difference in the value of the dollar that we get to pay among all, because the replacement of that position will undoubtedly be higher values.

Capital market to the extent of the large

In our country, the phrase that says, “the banks lend to those who do not need.” The truth is that, except in government-funded loans to SMEs or to encourage consumption, the banking system is designed to carry out credit operations for consumption or large companies, since they only have documentation, experience and relationships necessary to access productive financing. Far have been from small firms and the particulars the possibilities of obtaining convenient loans for many years in our country. On the other hand, any other reliable structure, obligations, or emission of shares or bonds for quotes in the trade purse are so complex that they are only reserved for the rich. These circumstances propose a reserve of the small local capital market for the rich by preventing access to these tools to the smallest, being exposed to disfinancing or usury.

Public Contracts

Of course, in our country, public investment largely outperforms private investment, the state being the main contractor of goods and services offered in the economy. The processes of public tenders are complex, require presentations and guarantees of supply generally reserved to large suppliers, leaving out small companies that must gather background and capabilities by doing the works for large companies that, in many cases, only add the value of their structural weight by paying the State a burden for this. In addition, the fame of ill-payer who has in general the public administration scares small suppliers against the fear of facing contractual failures. All this taken advantage of by the large companies that have bank financing in some cases and in others with the relationship with the customer that improves the payment deadlines.

Tax Agreements and Offers

The rich were undoubtedly the main beneficiaries of the moratoriums and tax bleaches. While an employee in relation to dependence contributes to a retention of the tax on earnings, anticipating the payment of the tax and with few possibilities of deducting their real life costs, the entrepreneurs who omitted to present their accounting states, or worse, altered their statements are benefited by this form of subsidies that is the forgiveness of fines, interest, back and bodily penalties, which is the payment in dozens of quotas with low interess weights.

Tax promotion schemes that were implemented for large agricultural or industrial investments were also forms of subsidies for investors, only in these cases they were called “focus”.

Inflation

Perhaps this is the largest and permanent subsidy in Argentina over the last 60 years.

Inflation is a source of unrealistic resources, both for the state and for the rich, because both factors are enriched in terms of purchasing power in the face of poor income, because wages and public expenditure are in delay in rising prices and in the value of hard currency of investment accounts and public expenditure.

When it comes to the public accounts and the fiscal deficit, which is the one produced between the incomes and egresos that has the state, we usually pay attention to the small companies and accountants working in a marginal market, claiming their incorporation into the legal market and the payment of the taxes that correspond to their activity, responding for the smallest incomes, on the one hand, and on the other to the people of low resources who receive minimal assistance for their subsistence. It also refers to the State as a lousy administrator who uses public resources for political and electoral purposes, and to major entrepreneurs as victims who have to sustain with their effort and imposed on this inefficient model.

It was installed in the published opinion that the policies of the state make the rich defend the poor. As we saw in Argentina, the subsidies that large companies and the rich receive were very important.

To create public assistance when it supports the poor without considering the incentives and privileges that the rich have is a clear manifestation of the struggle for the distribution of public resources.

On the other hand, social plans and supportiveism contribute to the main link in the productive chain, “consumption”, without which industries and trades would lack meaning.

Always, in direct or indirect form, subsidies end in the hands of the rich.

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horacio gustavo ammaturo

Horacio Gustavo Ammaturo

I am Gustavo Ammaturo. I have a degree in Economics. CEO and Director of infrastructure, energy and telecommunications companies. Founder and mentor of Fintech, DeFi and software development companies. Blockchain Product Designer.

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