Milei is committed to labor market reform and tax simplification

After suppressing galloping inflation and winning the mid-term elections, Argentine President Javier Milei is taking on the country's two most difficult economic problems: labor market reform and a complicated tax system – writes the British daily “Financial Times” on Thursday.

Milei, whose libertarian party Freedom Progress (LLA) won a surprise victory in the parliamentary elections on Sunday, wants to use the mandate to change the statist policy that causes Argentina has one of the highest tax burdens in Latin Americaand 42 percent employees are employed in the gray zone – notes “FT”.

As he adds, many economists admit that reforms are necessary to generate sustainable economic growth, as Mileia's austerity policies have stifled triple-digit inflation but limited economic activity in recent months. Foreign investment is low and concerns over exchange rate control have caused market turmoil.

“FT” emphasizes that pushing through the laws will not be easy. The labor market and taxes are sensitive issues for influential trade unions, which is why previous right-wing presidents had difficulty introducing significant changes. To gain support for the planned laws, Milei will have to form alliances with centrist parties. Although the LLA and its allies significantly increased their holdings in the elections, they still do not have a majority in both houses.

As “FT” notes, as a result of notorious crises Argentina's economy is no bigger than it was 10 years ago. While chronic inflation and tight currency controls are hampering economic activity, economists say structural problems are also to blame. Overlapping taxes and rigid labor laws, presented by left-wing Peronist governments as important protections for workers, discourage formal employment. In a country of 46 million people, there are fewer than 6.5 million officially employed in the private sector.

Milei announced that The draft labor law will relax the rules of collective wage bargaining, which regulate wages in most industries and can force small companies to pay as much as much larger competitors. He also wants to limit employee lawsuits and layoff compensation, which entrepreneurs say allow disgruntled employees to drive companies into bankruptcy with excessive claims.

Trade unions, most of them properonist, claim that existing laws are crucial to protecting workers against Argentina's extreme economic instability. They announce that they will block any project that “withdraws” workers' rights.

Because so many Argentines work illegally, local and national governments have raised taxes on small businesses to raise funds for public services. The industry lobby claims the tax burden is 50.7%, one of the highest levels in the region. Milei promised to abolish about 20 taxes, cut income taxes and change how VAT and other fees are divided between provinces and the central government.

But economists warn that reforms will only be effective if Milei's hard-earned macroeconomic stability persists. Many urged him to reverse the managed exchange rate policy, which had helped quell inflation but depleted the central bank's reserves and contributed to a dangerous decline in the value of the peso.

The FT notes that Milei, who last year called potential moderate allies “fiscal degenerates”, is signaling a change in approach to the opposition. He was scheduled to meet with influential provincial governors on Thursday to gain their support for reforms and said he would consider including non-libertarian politicians in his cabinet. (PAP)

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