Net Zero Budget
Javier Milei doubles down on "non-negotiable" budget surpluses...
“Governing is not administering the state, governing is reducing the state to enhance society.”
~ Javier Milei
Joel Bowman with today’s Note From the End of the World: Buenos Aires, Argentina...
The days grow longer as the seasons turn from winter to spring. Down here, in Argentina’s vibrant capital, the porteños linger in the cafés and plazas, gossiping over their cortados and copas (de vino).
On their minds: the blossoming future of their once-wealthy nation...
As long time readers know, we are keenly following along with what we’ve been calling “The Greatest Political Experiment of Our Time.”
To make an ongoing story short, the Argentines are cutting their government down to size... one ministry... one regulation... one tax at a time.
Over the weekend, the man with the motosierra (chainsaw) laid down the law in delivering an historic national budget, promising to restrict The State’s natural tendency to outgrow – and then strangle – the productive, private economy.
State Restrictions
“After years where the political class put restrictions on individual freedoms, today we come to put restrictions on the State,” President Javier Milei told Congress in a nationally televised address. “This budget is going to change the history of our country forever.”
In an unprecedented move, Milei announced he will veto all spending bills that are not balanced with spending cuts, reiterating his commitment to maintaining zero deficit as “non-negotiable.” (His administration already achieved the rare feat of delivering a fiscal surplus of 0.4 percent of GDP in the first half of the year.)
“Any expenditure that is created that does not explain from which existing budget line it will come from will be vetoed,” Milei warned a divided Congress. “We will veto all the bills that threaten the fiscal balance, because we will not be accomplices in defrauding the Argentine people.”
During the 45-minute speech, in which el presidente was characteristically unsparing in his criticism of profligate lawmakers, Milei outlined three “unprecedented objectives” for the national budget.
“First, it will guarantee fiscal balance, putting an end to the punishment of debt and money printing.
“It will also force the state to take charge and absorb the cost of possible recessions...
“And, for periods of abundance, such as the coming years, it will force the government to return excess revenue to society by lowering taxes.
“This means that, if this methodology is maintained from now on, we will not only be able to reduce taxes but also the size of the state, which is the real tax burden.”
Man vs. State
The national budget represents a 180 reversal in the way of thinking about the role of The State vis-à-vis The Citizen, away from the collectivist notions enacted by 75-years of Peronism and toward an increasingly free market model.
“The deficit has always been a consequence of thinking first about how much to spend and then how to finance it,” said Milei.
“We are going to do it the other way around: thinking first about how much we have to save, and then see how much we can spend,” he added.
On the monetary front, the national budget projects inflation dropping from its present annual rate of over 235% to 18% by the end of next year, followed by 11.6% in 2026 and 7.4% in 2027.
It also projects a primary fiscal surplus of 1.3% of gross domestic product (GDP).
The budget also anticipates the long-dormant Argentine economy will expand 5% in 2025, with exports of goods and services expected to grow 7.7% for the year, a remarkable recovery considering the 7.5% decline in 2023. On the demand side, private consumption is expected to grow by 4.5% in 2025.
On cue Monday morning, markets were predictably enthused by the news, with Argentine stocks off to the races following Milei’s speech. Here’s Reuters:
BUENOS AIRES, Sept 16 (Reuters) - Argentina's sovereign bonds and stock index climbed in early trading on Monday, as investors cheered an ambitious 2025 budget plan from libertarian President Javier Milei, that predicts robust growth and sticks to a "zero" fiscal deficit.
Argentina's S&P Merval stock index hit an intraday record high against its previous peak registered at the beginning of the month. Bonds, which have rallied strongly since Milei took office in December, were up around 1%.
Less Risky Business
Likewise, Argentina’s “Country Risk” rating, a closely monitored market indicator which roughly reflects the country’s “investability,” fell to its lowest level in recent years, at 1,379. (A lower level indicates lower risk.) The national budget projects investment will soar by 9.9% next year, with similar growth projections for 2026 and 2027.
Of course, projections are not prosperity... and promises, especially from the mouths of politicians, are best taken with a giant plain of salt.
And yet, as we see inflation come down here on the Pampas, as we watch the tide of The State begin to recede and the season change from the winter of despair to the spring of hope, one wonders if this long-suffering country’s best days are not yet to come.
In restricting The State and liberating The Individual, Sr. Milei is betting on the ultimate power of human ingenuity, industry and voluntary cooperation: Free markets, free minds and free people.
“The only person who can generate wealth in this country and in the world is the businessman, not the politician,” Milei said in remarks following his speech. “Politicians do not know how to create wealth, nor do they have the right incentives to do so. All they generate is corruption.”
And so, the Greatest Political Experiment of Our Time proceeds apace.
Stay tuned for more Notes From the End of the World...
Cheers,
Joel Bowman
P.S. Thanks as always to our dear Notes members, old and new! Your support helps us spread the ideas of peace, love and anarchy to readers in all 50 US states and to many more in 134 countries around the globe.
Here’s what a few happy Notes members have to say…
If you enjoy the work we do here and would like to join our growing community of folks interested in free markets, free minds and free people, please consider becoming a Notes member today. Cheers! JB
So refreshing to see the sunlight of reason! I hope USA wakes up and demands the same principles for our government to back off and represent the people: human respect motivating innovations and productivity….a balanced economic model based on results not on fantasy budgets which corrupt accountability….on all levels.
So far the great experiment seems to be going great! It’s still astonishing to me that Milei got elected at all in a country where so many voters ‘worked’ for the government and so few paid any taxes at all. Perhaps even when you can vote yourself more distributions from the treasury a dying currency reaches the pain point enough to motivate risking reform?