Report Nº: 99706/02/2023
The statement issued by the governors requesting the President to disobey the Court’s ruling confirms that the co-participation’s tangle has no solution. The only way out is to return to the scheme originally provided for in the Constitution, which consists of each province being financed with the taxes collected in its territory.
The Argentine Republic was born without co-participation. In 1862 -when it was constituted, with the incorporation of the province of Buenos Aires to the Confederation of the United Provinces– it was expressly established in the Constitution that the newly created national State would be financed with the income from foreign trade and the provinces, as they had been doing, with the taxes on the internal activities of their respective territories. This is technically known as the separation of tax sources.
The scheme worked until the crisis of 1930 when foreign trade collapsed. Thus, it was decided that the Nation would also be financed with taxes on internal activities. An agreement was reached with the provinces to unify the collection of internal taxes in the national State and to co-participate them. The mechanism included a primary distribution rule (between the national State and the provinces as a whole) and a secondary distribution rule (between the provinces). The scheme underwent many changes over time. In 1988, at the end of Alfonsín’s administration, the current rule was passed (Law 23.548).
What are the main features of the current co-participation? According to the Ministry of Economy so far in 2022 it is observed that:
These data show some of the arbitrariness contained in the co-participation regime. Although it is reasonable to redistribute in favor of the most backward areas (north), the fact that the region where almost half of the country’s population lives receives only a quarter is extremely arbitrary. This is explained by the fact that in the complex political negotiation that led to Law 23.548, in 1988, the coefficient of the province of Buenos Aires was cut back and when the Autonomous City was created in 1994, the co-participation was not adjusted accordingly.
To approve a new co-participation, unanimity by all provinces is needed. Therefore, it looks impossible to comply with the provisions of the current and transitory co-participation Law and the mandate included in the 1994 Constitution. The political leaders of the provinces that have benefited from the arbitrariness of the current scheme will never support a change that would be detrimental to them. Co-participation is not only a labyrinth, due to its complex arbitrariness, but it is also a trap because there is no way to reach the unanimous consensus necessary to modify it with any rationality.
The way out is to return to the origins of when the Argentine Republic was born. That is, to eliminate co-participation and reestablish the separation of tax sources. The national State should be financed with taxes on foreign trade, social security, and the totality of income tax. The provinces with the totality of VAT (unified with provincial sale tax, municipal taxes, and other taxes on transactions), and the Property tax (which should be unified with real estate and automobile taxes). For the northern provinces, current beneficiaries of the co-participation, a Compensation Fund should be contemplated to guarantee them the same level of current resources.
Argentina’s decadence is intimately associated with the co-participation system. It does not benefit the most backward areas but the political leaders of the less developed regions. Proof of this is that, even with the enormous mass of resources transferred to them through co-participation, the north of the country is increasingly underdeveloped. The leaders who signed the communiqué against the Court’s ruling did so based on their personal interests. With the co-participation, the citizens of these provinces will have to resign themselves to continue suffering the ravages of underdevelopment.