Informe Nº: 12/05/2014

For every $100 billion increase in gov`t spending poverty decreased only 1%

The economic authorities desisted from publishing poverty statistics. The distortion of official statistics is of extreme lack of responsibility and diverts attention from the central issue. The controversy over the severity of poverty reduces the debate over the regressive consequences associated with the waste of public spending. In order to reduce poverty is vital to stop the manipulation of statistics and to reexamine how the state is managed.

Poverty in Argentina is traditionally measured by the Total Basic Basket (CBT for its acronym in Spanish). This methodology considers poor people whose household with income less than the cost of the CBT. Since 2007, when the manipulation of price index started, prices of the CBT started to be underestimated, which also lead to an underestimation of the number of poor. To the INDEC in the first half of 2013 poverty affected only 4.7% of the population.

An alternative way to measure social marginality is to consider poor people those whose income does not exceed 60% of the median income of the population. This indicator is used in advanced countries since it is assumed to be the most appropriate way to measure inclusion by analyzing the situation of those with the lowest income.

Poverty can be estimated, using the previously mentioned methodology, processing data from INDEC’s household surveys and it can be compared with public spending data released by the International Monetary Fund. Thus, between 2004 and 2013:

· Poverty, as measured by the methodology of the 60% of the median income, went from 31% to 26% of the population, thus reducing 5%.

· Total public expenditure of the national, provincial and municipal administrations measured in real terms rose from AR$ 735 billion to AR$ 1,200 trillion, a 64% increase above inflation.

· This means that for every AR$ 100 billion increase in real government expenditure, poverty declined one percentage point.

These data show that poverty reduction has been quite modest, especially when contrasted with the sharp increase during the decade in public spending in the three levels of government. This is strong evidence that increasing the size of the state did not generate inclusion or poverty reduction. In other words, the poor suffer from higher taxes but do not benefit from the increase in public spending.

Distorting official statistics to hide reality is improper of a democratic country. But the most serious consequence is that it diverts important efforts. While a large amount of energy is used to try to quantify the number of poor, little attention is assigned to figure out why after a decade of high economic growth and an unprecedented expansion of government spending a quarter of the population were unable to improve their ability to generate income compared with the rest of the population.

The most illustrative example of the regressivity in the public spending is the economic subsidies. During 2013 AR$ 134 billion were destined to subsidize public and private companies. The subsidies amount to more than AR$ 1,000 per month for each of the urban poor in Argentina. But instead of using these resources to implement public policies that improve poor´s capacities, subsidies flow to the middle and upper segments, especially those living in Buenos Aires, through tariffs that do not cover production costs. Even more regressive are the subsidies that end up benefiting contractors and state employees, such as the subsidies to Aerolíneas Argentinas.

Inclusion involves increasing the equality of opportunities by rising income generation capabilities in the most marginalized segments of society. The experience of recent years shows that the "spillover" of economic growth due to the international bonanza is not enough. Improvements in economic and employment policies are needed. For example, reducing economic subsidies can be translated in an elimination of the high fiscal pressure in the labor market and thus providing an opportunity for the poor to access private formal employment. In parallel, it is essential to implement modern social policies which promote responsible motherhood, female employment, and quality education and public health.    

Palabras clave:

Relevancia en formulación, implementación y gestión de reformas en
diferentes áreas sociales desde 2004.
Enterate qué otras cosas hacemos en IDESA.