20% of the national budget is spent on Buenos Aires city

The President pointed out that Buenos Aires City, the country’s capital, is a beautiful place, but he feels guilty by the contrast between its opulence and the backwardness of the country’s interior. The truth is that the gap in regional development is very high. In this context, a bill called “Alternative Capitals of the Argentine Republic” is being discussed in Congress.

The idea is to declare several cities of the provinces’ interior (that is, not the provincial capitals) as venues for periodic meetings of national and provincial officials and civil society representatives. These meetings will identify society’s demands and coordinate the public policies needed to meet those demands. The plan also involves the possibility of relocating or install national offices delegations in alternate capitals.

Is the extension of the national state bureaucracy to inland cities an effective way to bridge development gaps? Observing how national fiscal resources are allocated could shed some light on the answers. According to data from the Ministry of Economy for the year 2019, it can be seen that:

• The National State administers fiscal resources for 22% of the GDP.
• 20% of these national resources are spent in Buenos Aires City.
• Buenos Aires City holds only 7% of the country’s population.

These data show that Buenos Aires City absorbs a disproportionate share of national fiscal resources considering its population. Part is explained by the fact that the federal state’s bureaucracy is mostly located in the Capital. But the concentration is strengthened with subsidies financed by national resources to Buenos Aires City’s public services (electricity, water, gas, transport) and other services, such as justice and security, which in the country’s interior are financed by the provinces.

The origin of the problem is that the federal state collects the bulk of the taxes, and only a minor part is automatically redistributed to the provinces. More precisely, the federal government taxes the entire Argentine population for the equivalent of 24% of the GDP but redistributes automatically only 8% of the GDP. The 16% of the GDP that the federal government holds it adds the monopoly of issuing money. Since the Central Bank is under the national public sector umbrella, it can finance the excesses of national expenditure with monetary printing. Both factors allow the federal government to manage fiscal resources for 22% of the GDP, which directs disproportionately in favor of the Capital.

The concentration of fiscal resources and decision-making power in Buenos Aires City generates strong magnetism in the private sector. The best infrastructure, subsidized services, and proximity to political power induce the country’s leading and most competitive companies to locate their headquarters in Buenos Aires City. Thus energy companies of Patagonia, agribusinesses of the pampas and Cuyo, and the north’s mining ones all set their central offices in Buenos Aires City. In the financial sector, this logic reaches paroxysm. The concentration of fiscal resources and the most competitive companies’ migration to the Capital transforms it into an opulent city degrading the interior.

The President proposes that national officials travel periodically to the interior to visit the alternate capitals. In the best of cases, this is symbolic. It is as inconsequential as maintaining the current concentration of fiscal resources in the national state but increase its “generosity” subsidizing a small part of the services that correspond to provincial functions. To develop the country’s interior, co-participation must be eliminated, and the provinces must be given back powers to collect their own taxes so that they can self-finance. In parallel, a convergence fund, financed primarily by the “opulent” Buenos Aires City, should promote development acceleration in the north of the country.