Report Nº: 197311/06/2024


With the argument of protecting the fiscal surplus, President Milei threatens to veto the bill that modifies the pension indexing rule. However, the bill protects the public accounts more than the government’s DNU. Therefore, in order to make the fiscal balance sustainable, the best alternative is to implement the law properly.

In March, the national government sanctioned the Emergency Necessity Decree (DNU) No. 274/24 modifying the pension indexing formula. It stipulated that pensions would be adjusted monthly with the inflation rate of 2 months ago. As the new formula started to be applied in April, pensions were updated with the inflation of February. This generated an inconsistency since, the last indexing with the old formula in March, updates were applied taking variations until December 2023. Thus, the DNU partially covers the “gap” of January 2024 since for April, in addition to the February inflation, another one-time increase of 12.5% was added, when the inflation in January was 20.5%.

The government’s intention in arbitrarily fixing a pension increase well below January’s inflation is to add to the fiscal surplus. The counterpart is that it weakens the DNU. To correct this situation –which is a source of high judicial litigation– the opposition moved forward with a bill stipulating that the one-time increase in April be equal to January’s inflation. This reduces the risk of litigation but increases public spending. President Milei’s reaction was to threaten to veto the bill if it passes. 

The question is which of the two alternatives is more consistent with the objective of a sustainable fiscal surplus. To answer it, the following exercise is useful:

  • In June 2024 the average pension, including the bonus, which is not subject to indexing, is approximately 37% below the level recorded in 2017.
  • With the bill in the House of Representatives, the average pension rises 6%.
  • This means that, even with the increase in the bill in the House of Representatives, in June 2024, the average pension will still be 33% below the average pension in 2017

These data show that the bill approved in Deputies maintains the strong real value loss that occurred in pension spending since 2017, with the inflationary crisis that broke out in 2018 and persists to this day. From this point of view, the bill does not appear as destabilizing the public accounts. On the contrary, it keeps pension spending well below historical levels.

Moreover, the spending expansion underlying a more consistent link with the old formula is less than the expenditure required by the $70,000 bonus paid to the lowest salaries. Since this bonus is defined at the discretion of the Executive, it is possible to, by simple decree, establish a more restrictive rule for the payment of the bonus focusing on the most vulnerable beneficiaries. In this way, a similar saving could be achieved to compensate for the higher cost generated by the new indexing rule of the Bill of Deputies.

In order to dispel the controversies surrounding the Deputy’s bill, it must be taken into account that public accounting, unlike private accounting, records the expense of a lawsuit when it is paid, not when the event that generates it occurs. This is a consequence of the fact that the State does not record provisions during the period in which the expense is accrued, as is the case in the private sector. By not recording provisions for lawsuits, the fiscal surplus achieved with the DNU is overestimated. On the contrary, the bill of the Lower House, by reducing the risks of lawsuits, does not generate “hidden expenses” for future lawsuits. 

Objectively speaking, the Lower House bill preserves the fiscal surplus more than the DNU. The reason for this is that there is a vast jurisprudence that warns that pension indexing has to be regulated by law and that the link with the formula to be replaced has to be consistent. The DNU by its legal nature and its arbitrary splicing creates an extremely fertile field for judicial litigiousness to flourish. The bill corrects this legal weakness, keeps the expenditure well below the historical average and allows the higher cost to be compensated with the redesign of the discretionary bonus.


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