| BUENOS AIRES
BUENOS AIRES Dec 22 Argentina's congress
approved a reform to the country's income tax code on Thursday
after President Mauricio Macri's government reached a deal with
unions and governors to quash a competing proposal from
Last month, Macri's center-right administration proposed a
reform in line with its goal of trimming next year's budget
deficit to 4.2 percent of gross domestic product. But in a rare
show of unity, the lower house opposition passed its own version
with far more generous tax cuts, forcing the government to
The lower house passed the measure by a 166-5 vote, after it
easily passed the Senate 55-2 on Wednesday.
Economists said the law passed on Thursday was closer to the
government's original proposal than the opposition's project and
would not threaten Macri's efforts to trim the 2017 deficit.
But the episode nonetheless unnerved investors by raising
the likelihood that a divided Peronist opposition can unite to
prevent Macri, whose "Let's Change" coalition lacks a
legislative majority, from passing additional market-friendly
reforms ahead of midterm congressional elections in October.
"With this law, investors discovered how vicious the
Peronist part could be when they smell blood," said Jorge
Piedrahita, CEO of broker Torino Capital. He noted that Macri
remains politically vulnerable if he cannot revive an economy
that is still in recession a year after he took office.
At issue in the income tax debate was how much to raise the
minimum taxable income level, as rampant inflation seen at 40
percent this year and 20 percent next year has eroded
Argentines' purchasing power.
The law passed on Thursday raises the minimum taxable income
level by 23 percent to 37,000 pesos ($2,377.93) a month for a
married couple with two children, more than the government's
initial proposal but less than the opposition plan. The
government will make up for some of the shortfall with a tax on
The revised law will reduce government revenue by 7 billion
pesos ($443.88 million) next year compared with the initial
While not disastrous, the rise in interest rates globally
has raised the stakes for Macri's ability to meet fiscal
targets, said Marcos Buscaglia, founding partner at consultancy
Alberdi Partners in Buenos Aires.
"The financing of 2017 is an uphill task," Buscaglia said.
"They still have to issue a lot of bonds, and the international
situation has become more challenging."
($1 = 15.7700 Argentine pesos)
(Reporting by Luc Cohen and Buenos Aires newsroom; Editing by