What Milei said about the fiscal deficit and surplus

But without touching the work, but without touching my sector, but without touching the subsidy to my friend. Behind every ‘but’ there’s an expense someone wants to keep. And the surplus in a country that has come from being a tax hell can only be built by cutting spending and increasing revenue through productivity growth. Those who say ‘I want a surplus, but…’ are really saying they want a deficit.

When we decided to undertake the stabilization program, facing the five points of fiscal deficit in the Treasury, the decision was not to raise taxes; the decision was to reduce public spending. Essentially because we believed that the fiscal deficit was immoral. Because if I have a fiscal deficit, I have to finance it. And if I finance it with debt, it means that today’s party will be paid for by my children, my grandchildren, and even generations that haven’t been born yet.

Having said this, let’s go to the issue... Oh, well, there was another option regarding the deficit. Yes, there was the option to raise taxes. Well, not for us. In fact, we lowered them. So the only alternative was to reduce public spending; there was no other option. In fact, the true fiscal pressure that a government faces is the size of public spending. So, you will have to finance it somehow.

The other, I say, what am I going to do? Fiscal deficit. You have no idea the mess it is to maintain fiscal balance. The pressures I have all the time, everyone wants to spend. Now, what’s the problem? The problem is, once again, that I am going to be implementing a positive demand shock when I have a supply contraction. But not only that. How will I finance it? With debt? It’s immoral. With monetary issuance and inflation? It’s immoral. Tax hikes?

The Treasury deficit, which they said we couldn't eliminate over the course of... not even in 5 years, 6, well, we eliminated it in the first month of management. And the quasi-fiscal deficit, which was 10 points of GDP, we resolved in 6 months. That is to say that in 6 months we made a fiscal adjustment of 15 points of GDP, we lifted the pressure off the private sector by the equivalent of 15 points of GDP and not only that: we have continued making adjustments and it allowed us to lower taxes for the first time in history by four points of GDP.

The second extremely important point is that, basically, recovering fiscal equilibrium involved restoring savings, and savings become a fundamental piece to finance investment. At the same time, this is where private property plays a fundamental role because all the engineering of growth, I will be going into each of the parts later, but essentially addresses how I generate savings and that savings are transformed into investment.

If we uphold fiscal balance, if we achieve that basic consensus, we are assured unimaginable growth after decades of stagnation. If we fail, we will fall back into the pit of uncontrolled inflation and the destruction of all expectations for the country. In this sense, the National Budget is not just a mere bill; it is the reaffirmation of our unwavering commitment to move the country forward.

Fiscal balance is the cornerstone of our government plan. And it is a non-negotiable principle that we have presented to society from the beginning of our management. No country in the world can function properly without a balanced budget, which is why politicians around the world find consensus and agreements to sanction the law of laws. We understand that fiscal balance may seem like a mere whim, but it is nothing more and nothing less than the definitive solution to the problems that have plagued Argentina for decades.

We must understand once and for all that there is a direct relationship between fiscal order, the decrease in country risk, economic growth, and prosperity. All other paths have been attempted and have failed. They have failed utterly. We must not fall prey to false dilemmas that they want to propose to us; it is not through fiscal deficit that we will meet the needs of the most vulnerable. In fact, that remedy has proven to be worse than the disease.

Consequently, we must make fiscal balance mandatory for any state budget, whether national or subnational, but fiscal balance alone is not enough; it must be accompanied by a severe reduction of public spending in order to return to society what the State currently confiscates through taxes.

Therefore, we must also establish a fiscal target so that by 2027, consolidated public spending in Argentina is a maximum of 25 percentage points of GDP, as all of us committed to in the May Pact, where both the National State and the provinces and municipalities will have to fulfill their part. Because the smaller the size of the State, the greater the economic freedom, greater economic growth, higher per capita income, and, therefore, fewer poor people in Argentina. In other words, the true trade-off is whether we are willing to accept more public spending to have more poor people. I prefer to reduce the State and have fewer poor people in Argentina.

The problem of the deficit, however, is not a novelty. In Argentina, we have had fiscal deficits in 113 of the last 123 years, and those 10 years without a deficit were because everything had already blown up and we were in default. This means that practically 100% of our modern history, governments have failed to comply with this basic economic truth and have passed the bill onto ordinary Argentines time and again. It also means that this will be the first year of fiscal surplus without entering into default in all of Argentine history.

You may then ask who could benefit from this model. Well, do you know what the mother of the deficit is, the reason for the deficit: the endless compulsion of politicians for public spending, which knows no budgetary restraint whatsoever. Because it is only by spending money that is not theirs that they can do business for themselves, their clients, and their friends. As Friedman used to say, there is no worse way to spend than public spending, because there are four ways to spend money: spending your own money on yourself, spending your own money on others, spending other people's money on yourself, or spending other people's money on others. And since one does not know others' preferences or is responsible for other people's money because one does not know how much it cost to acquire it, the worst way to spend money is to spend someone else's money on others, which is precisely the spending of the State.

Of those 17 points of GDP, 15 correspond to the consolidated deficit between the Treasury and the Central Bank. Therefore, there is no viable solution where we avoid tackling the fiscal deficit. At the same time, of those 15 points of fiscal deficit, 5 correspond to the National Treasury and 10 to the Central Bank, so the solution involves, on the one hand, a fiscal adjustment in the national public sector of 5 points of GDP, which unlike the past, will fall almost entirely on the State and not on the private sector.