Report Nº: 99320/12/2022
In Argentina, there is a tendency to believe that state-owned companies have a strategic role that justifies their being subsidized. This practice has been so abused that it has reached the extreme of allocating more subsidies to state-owned companies than in the Universal Child Allowance and the food stamp program.
The acceleration of inflation, the deepening shortage of official dollars, and the unsustainable growth of Leliqs (repos) make it inevitable to address fiscal balance. Postponing decisions will intensify inflation. This cannot be solved with traditional adjustments measures such as non-indexing pensions, delaying payments to providers, postponing public works, or creating new taxes. What is needed is a comprehensive reorganization of the State that, based on a better organization, will make it possible to achieve a sustainable fiscal balance together with greater efficiency in state management.
The challenge includes tax, social security, and functional reorganization. In relation to rethinking the functions of the State, an unavoidable issue is state-owned companies managed by the national State. The 2023 Budget identifies 33 state-owned companies, 24 of which require subsidies from the national Treasury because they lose money. In addition to the financial deficit, many of them enjoy tax and regulatory privileges that allow them to avoid competition and/or distort the market in their favor.
Considering only the financial aspect, it appears as a very relevant issue the public resources that state-owned companies consume through subsidies from the national Treasury. According to the Budget 2023 it is observed that:
These data show the dimension of the state-owned companies’ deficits. The magnitude and regressivity are reflected in the fact that more will be spent on sustaining deficit-prone state-owned companies than on children in situations of social vulnerability. It is very difficult to justify the use of public resources to support the state production of certain services competing in the market. But it is impossible to do so when more resources are allocated to state-owned companies than to the poor in a country where more than half of the children are in poverty.
It is necessary to distinguish the different destinations of these subsidies. In some cases, the objective is sustaining artificially low tariffs. For example, the subsidies to ENARSA to import gas and reduce the cost paid for energy consumption, to AySA to lower the water and sewage rates in the AMBA, and to the six train companies to reduce fares, mainly in the AMBA. These companies receive 1% of the GDP. In other cases, subsidies are mainly appropriated by employees and contractors. This is the case of Aerolíneas Argentinas, Intercargo, Correo, Nucleoeléctrica, Yacimientos Carboníferos Río Turbio, among others, which consume the remaining 0.2% of the GDP. Furthermore, tax exemptions and regulations that allow them to charge consumers more for their services must be added.
The challenges posed by these different types of subsidies are also different. Subsidies aimed at reducing tariffs must be corrected with more rationality in the management of utility rates. The general rule should be that companies charge for their services the costs of producing them and limit the allocation of public funds to finance a social tariff to lower-income households. When public funds are used to subsidize companies’ employees and suppliers, it is necessary to force management changes. In other words, it is necessary to limit the allocation of public funds to support a social tariff scheme and eliminate subsidies for middle and high-income households and inefficient state-owned companies.
Using public funds to subsidize state-owned companies lacks rationality, equity, and ideological reasons. There are much higher priorities within the public budget. Only state-owned companies whose efficiency allows them to be self-sustainable are tolerable. If this cannot be achieved, it is appropriate –as the left-wing former president Mujica did with Pluna (Uruguay’s flag carrier)– to close the company.