Tierra del Fuego shows that there is no "Rift" - IDESA

Report Nº: 99020/12/2022

Tierra del Fuego shows that there is no “Rift”

With a broad consensus, it was established in Tierra del Fuego that public employees will retire at 55 years of age. The promise is actuarially unfulfillable. Another piece of evidence that Argentina’s decadence is not the result of la grieta (the “rift”) but of the consensus around wrong policies.

The Legislature of Tierra del Fuego approved that provincial public employees may retire at 55 years of age, until December 31, 2027. This age is much lower than the general national regime of 60 for women and 65 for men. Likewise, rules were established to increase to a minimum of 30 years of contributions, of which 25 years must be made in the province, while the remaining years may be covered with national contributions or contributions from other systems. Contrary to the prevailing idea of the “rift”, the project was approved with a broad political consensus.

The Caja de Previsión Social de Tierra del Fuego is suffering a deep funding crisis, as is the case with most of the Argentine social security schemes. In 2017, an attempt was made to alleviate the problems with a much-resisted reform. The legal changes in that instance tended towards a partial harmonization with the retirement parameters of the national regime. For example, the retirement age was set at 60 years. However, with the recently enacted law, a window was created until 2027 for public employees to continue retiring at 55 years of age.

What does the evidence say about this promise? A very simple calculation indicates that:

  • A person retires at 55 years of age, with 30 years of contributions of which 25 have to be at least in the Caja de Previsión Social de Tierra del Fuego.
  • According to the CEPAL’s demographic bulletin, in Argentina, life expectancy at 55 years of age is approximately 85 years.
  • This implies that the person will be retired for longer than the time she made contributions to the Caja de Previsión Social de Tierra del Fuego

These data show the profound inconsistency contained in these pension rules. A commitment is made to pay pensions for longer than the period for which contributions are made. In addition, the pension is increased in such a way that in most cases the pension is higher than the average salary on which contributions were made. For this to be financially consistent, it would be necessary to require active workers to allocate more than half of their remuneration to the pension system. Since this level of taxation is neither reasonable nor tolerable, the option is to make an unfulfillable promise with a high dose of demagogy and social irresponsibility.

The main argument to justify irresponsibility is that the Pension Fund is currently in surplus. This is a fallacious argument, especially in a relatively young pension system such as the one in Tierra del Fuego. With barely 40 years of operation, it still enjoys a low ratio of retirees to active workers (7,000 against 23,000). But even so, social security spending already represents 15% of the province’s total public spending. To get an idea of the magnitude, investment in primary and secondary education in Tierra del Fuego represents 22% of provincial public spending. It is possible that in 2028 –when this window of opportunity to retire at 55 passes– spending on pensions for public employees will be equivalent to spending on basic education.

The lack of foresight in the pension policy is not an isolated fact limited to Tierra del Fuego, but a generalized and long-standing phenomenon. A striking example, due to the similarities with what happened in Tierra del Fuego, occurred in Cordoba in 1990. At that time, a pension regulation with similar contents was approved with a practically unanimous consensus. A few years later, the pension imbalance was so great that it destabilized the public finances of the province, generating a serious economic and political crisis and institutional damage that has lasted until the present day.

The Legislature of Tierra del Fuego provides new evidence that there is no “rift” in the organization and administration of the State, but rather a consensus that sustains policies that generate decadence. This is a long process of degradation of the State derived from decisions that combine demagogy, opportunism, improvisation, and irresponsibility. As long as these mistaken consensuses are not made explicit and questioned, and more responsible and rational criteria are not imposed in the organization and management of the State, there will be no possibility for Argentina to get out of its decadence.


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