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With inflation heading for 3 digits, Argentina reduces subsidies and increases electricity, gas and water bills

The government of Argentina announced this Tuesday () the elimination of subsidies to gas, electricity and water bills, which will be applied in stages and according to income and consumption levels.

The tax savings for 2022 on electricity and gas services will be 47, 5 billion pesos (R$ 1,81 billion), informed the Energy Secretary, Flavia Royón, at a press conference.

The savings with the elimination of the subsidy on the water bill will be 2 billion pesos for the rest of 2022 (R$

million) and 45 billion pesos (R$ 1,71 billion) in 2023, according to the head of the Argentine Water and Sanitation Company (AYSA), Malena Galmarini.

The Secretary of the Treasury, Raúl Rigo, said that until 2023, an impact of 0.4 to 0.5% of GDP can be expected, which will be “a crucial contribution to the policy of reorganization of public accounts”. In 2022, tariff increases will only be applied in November and December.

The measure also aims to “increase awareness that energy is a resource that we must take care of ”, said Flavia Royón.

Tax cost

Argentina maintains subsidized energy and water tariffs, which results in a tax cost that, in a country without access to external financing and with limited local financing, ends up being resolved with currency issuance, generating inflation (71% in July in the accumulated in 12 months).

Argentina had agreed with the International Monetary Fund (IMF) to reduce state energy subsidies (0.6% of GDP in 2022), in order to improve the composition of public spending.

In addition, state aid payments do not only reach the poor because, as Royón stated , the portion of the population with the highest income receives 60% of the subsidies.

To implement the cancellation of subsidies, the Argentine government created a form for the population to prove they need them. More than 8.8 million electricity users were registered, and about 4 million users did not apply.

The sharp rise in prices that Argentina has registered in recent weeks makes the country is on its way to closing 2022 with annual inflation above 90%, with some analysts even forecasting the arrival of triple digits, which had not been been seen in the last two decades.

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