More in spent in subsidies to Aerolineas Argentinas than in basic education

Faced with the dollar instability, the authorities announced their intention to revise economic subsidies. Apart from being a delayed response, the initiative was put as a threat to those who seek to protect their savings by buying dollars instead of a fair and rational policy in the allocation of public funds. The general rule should be that tariffs are in line with the costs of public services. In parallel, it is needed to implement social tariffs so that poor households in the whole country (not just those living in Buenos Aires) will be the only ones receiving subsidies.

National public accounts for 2013 show an approximate $64 billion deficit. This represents approximately 2.3% of GDP. Considering that during the year the Treasury received $36 billion from the Central Bank and $24 billion from the social security system, the total imbalance amounts to $125 billion, about 4.5% of GDP.

This disequilibrium is one of the main causes of inflation which, in turn, causes the tension on the dollar. That is why the key issue is to reduce the fiscal deficit. This means that discussing exchange rate market unfolding, agreements on prices or demonizing entrepreneurs are irrelevant topics. While wasteful spending is abundant in the public sector, an important item is the economic subsidies, which as November of 2013 accumulated $ 110 billion, an equivalent amount to that of the fiscal deficit.

The level of irrationality which has been achieved through economic subsidies can be illustrated by the case of Aerolíneas Argentinas. As of November 2013, this public company received from Treasury $ 3,120 million. For reference, according to the 2014 provincial budgets of some of the poorest provinces in the country, it is seen that:

· The province of Formosa plans to invest $ 2,589 million in public education.

· The province of Jujuy will invest $ 3,806 million in public education.

· The province of Santiago del Estero plans to invest $ 4,137 million in education.

This data shows that what is being spent on subsidies for a public company is similar to what is being allocated to primary, secondary, tertiary education and culture in some of the poorest provinces. It takes no deep analysis to demonstrate that the social return of investing in education is substantially higher than covering the deficit of Aerolíneas Argentinas. Ensuring coverage and quality of air services is an important objective that can be achieved without subsidies, good regulations, promotion to the entry of private investment and competition. Instead, providing children and young people in the poorest provinces with high quality public education is a strategic objective that can only be achieved by the state.   

The authorities’ diagnosis on the need to review subsidies is right, but being proposed as a penalty to those who purchase dollars is misguided and condemned to failure. Operationally, it is very difficult to reduce the subsidy on electricity, gas and water utilities to households where the owner is detected as a purchaser of dollars. In addition dollar buyers may not have public services on their name or may have public services of households they no longer live in on their house. Likewise, it is impossible to eliminate subsidies to those who use trains and buses. For some public companies, like Aerolíneas Argentinas, the subsidy is not appropriated by their clients  but by employees and contractors who in the tangle of inefficiency and lack of transparency get privileges

Instead of squandering fruitless efforts seeking those who buy dollars, it would much more conducive to identify individuals who would qualify for a social tariff. Thus, all low-income families (not just those living in Buenos Aires) would be able to access public services with subsidized social tariff. The rest of the families should pay a tariff that covers operational costs as well as investments in order to guarantee the quality of the service.

This is the way to give economic rationality to the provision of public services and to correct the serious social and geographical inequities produced by indiscriminate subsidies. In addition, eliminating the fiscal deficit will solve the problems of inflation and the dollar exchange rate. Thus, the population will not have to keep wasting time on the task of "price vigilance” or finding ways to protect their savings by buying dollars.