After taming Argentina’s rampant inflation and earning a big midterm victory, President Javier Milei is taking on two of the country’s thorniest economic problems: reforming the rigid labour market and labyrinthine tax system.
Milei, whose libertarian party secured a surprise landslide win at legislative elections this week, wants to use his mandate to overhaul statist policies that have given Argentina one of Latin America’s highest tax burdens and pushed 42 per cent of workers into informal employment.
Milei says his reforms will generate “unprecedented economic growth” and hundreds of thousands of jobs by 2027, in a country where the number of formal private sector roles has been almost flat since 2011.
“We are speaking about nothing less than a paradigm shift in Argentina’s economy,” he said this month. “We will leave behind the last 15 years of our history once and for all.”
Many economists say the reforms are essential to generate lasting growth, after Milei’s austerity cooled triple-digit inflation but crimped activity in recent months. Foreign investment remains paltry and concerns over Milei’s controlled exchange rate have caused damaging bouts of market turmoil.
Passing the bills will not be easy, however. Labour and tax are sensitive issues for Argentina’s powerful unions and 23 provincial governments respectively. Recent rightwing presidents have struggled to deliver significant changes.
The bellicose libertarian will need to build alliances with centrist parties to approve the legislation, which he plans to present by the end of the year. While Milei’s La Libertad Avanza party and its main allies sharply expanded their congressional bloc at the elections, to 104 of 257 seats in the lower house and 24 of 72 in the Senate, they remain short of a majority in both houses.
“Milei has emerged from the elections in the power position, and this could be a new honeymoon period for his government,” said Marcelo Garcia, Americas director at consultancy Horizon Engage. “He has to move fast to take advantage of that.”
Stuck in a cycle of repeated crises, Argentina’s economy is no larger than it was a decade ago. While chronic inflation and strict currency controls have weighed down activity, economists say structural problems are also to blame.
Overlapping taxes and rigid labour laws, championed as important worker protections by left-leaning Peronist governments, have discouraged formal hiring. There are fewer than 6.5mn formal private sector jobs in a country of 46mn.
Milei has said his labour bill will relax the rules of collective wage negotiations, which still dictate salaries in most industries and can force small companies to pay the same wages as much larger rivals. He also wants to curb labour lawsuits and dismissal compensation, which businesses say have empowered disgruntled employees to sink companies with exorbitant claims.
Argentina’s largely pro-Peronist labour unions argue that existing rules have been crucial to protect workers from Argentina’s extreme economic volatility. Héctor Daer, co-general secretary of the country’s general labour confederation, said the group would try to block any bill that “goes backwards” on workers’ rights.
With so many Argentines working off the books, local and national governments have raised taxes on the small formal economy to eke out funds for public services. The country’s industrial lobby claims the tax burden on the formal economy is 50.7 per cent, one of the region’s highest.
Milei has promised to scrap about 20 taxes, reduce income tax and redesign how VAT and other levies are shared between provinces and the nation.
Lowering business costs has become increasingly urgent as Milei’s recent cuts to tariffs and import restrictions open up the protectionist economy to foreign competition. Argentina’s least competitive industries, such as manufacturing, have shed tens of thousands of jobs.
“As we transition from a closed economy, where competitiveness didn’t matter much, it is essential to advance in these reforms or many businesses will fail,” said Sebastián Menescaldi, director at EcoGo economics consultancy.
Tax and labour overhauls could “increase Argentina’s GDP growth by up to two points a year”, said Jorge Vasconcelos, chief researcher at Ieral think-tank, noting that labour and fiscal reforms had helped lift Brazil’s GDP growth well above Argentina’s in recent years.
However, economists warn reforms will be successful only if Milei’s hard-won macroeconomic stability remains intact. Many have called for him to overhaul his controlled exchange rate policy, which helped curb inflation but drained central bank reserves, contributing to a dangerous run on the peso last month.
“The government needs a solid strategy to rebuild reserves, which I think is inconsistent with the current policy,” said Martín Rapetti, executive director of Equilibra consultancy. “Without reserves Argentina will always be vulnerable to crisis.”
The government has insisted it will not float the currency in the short term, and pressure on the peso has eased since the election.
But Milei, who last year insulted potential moderate allies as “fiscal degenerates”, has signalled he is changing his approach to the opposition. He is set to meet influential provincial governors on Thursday to seek their support on reforms, and said he would consider adding non-libertarian politicians to his cabinet this year.
“I have to find the votes I need to enact these second-phase reforms that are very important to Argentines,” he said. “I will do what it takes to get results.”
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After taming Argentina’s rampant inflation and earning a big midterm victory, President Javier Milei is taking on two of the country’s thorniest economic problems: reforming the rigid labour market and labyrinthine tax system.
Milei, whose libertarian party secured a surprise landslide win at legislative elections this week, wants to use his mandate to overhaul statist policies that have given Argentina one of Latin America’s highest tax burdens and pushed 42 per cent of workers into informal employment.
Milei says his reforms will generate “unprecedented economic growth” and hundreds of thousands of jobs by 2027, in a country where the number of formal private sector roles has been almost flat since 2011.
“We are speaking about nothing less than a paradigm shift in Argentina’s economy,” he said this month. “We will leave behind the last 15 years of our history once and for all.”
Many economists say the reforms are essential to generate lasting growth, after Milei’s austerity cooled triple-digit inflation but crimped activity in recent months. Foreign investment remains paltry and concerns over Milei’s controlled exchange rate have caused damaging bouts of market turmoil.
Passing the bills will not be easy, however. Labour and tax are sensitive issues for Argentina’s powerful unions and 23 provincial governments respectively. Recent rightwing presidents have struggled to deliver significant changes.
The bellicose libertarian will need to build alliances with centrist parties to approve the legislation, which he plans to present by the end of the year. While Milei’s La Libertad Avanza party and its main allies sharply expanded their congressional bloc at the elections, to 104 of 257 seats in the lower house and 24 of 72 in the Senate, they remain short of a majority in both houses.
“Milei has emerged from the elections in the power position, and this could be a new honeymoon period for his government,” said Marcelo Garcia, Americas director at consultancy Horizon Engage. “He has to move fast to take advantage of that.”
Stuck in a cycle of repeated crises, Argentina’s economy is no larger than it was a decade ago. While chronic inflation and strict currency controls have weighed down activity, economists say structural problems are also to blame.
Overlapping taxes and rigid labour laws, championed as important worker protections by left-leaning Peronist governments, have discouraged formal hiring. There are fewer than 6.5mn formal private sector jobs in a country of 46mn.
Milei has said his labour bill will relax the rules of collective wage negotiations, which still dictate salaries in most industries and can force small companies to pay the same wages as much larger rivals. He also wants to curb labour lawsuits and dismissal compensation, which businesses say have empowered disgruntled employees to sink companies with exorbitant claims.
Argentina’s largely pro-Peronist labour unions argue that existing rules have been crucial to protect workers from Argentina’s extreme economic volatility. Héctor Daer, co-general secretary of the country’s general labour confederation, said the group would try to block any bill that “goes backwards” on workers’ rights.
With so many Argentines working off the books, local and national governments have raised taxes on the small formal economy to eke out funds for public services. The country’s industrial lobby claims the tax burden on the formal economy is 50.7 per cent, one of the region’s highest.
Milei has promised to scrap about 20 taxes, reduce income tax and redesign how VAT and other levies are shared between provinces and the nation.
Lowering business costs has become increasingly urgent as Milei’s recent cuts to tariffs and import restrictions open up the protectionist economy to foreign competition. Argentina’s least competitive industries, such as manufacturing, have shed tens of thousands of jobs.
“As we transition from a closed economy, where competitiveness didn’t matter much, it is essential to advance in these reforms or many businesses will fail,” said Sebastián Menescaldi, director at EcoGo economics consultancy.
Tax and labour overhauls could “increase Argentina’s GDP growth by up to two points a year”, said Jorge Vasconcelos, chief researcher at Ieral think-tank, noting that labour and fiscal reforms had helped lift Brazil’s GDP growth well above Argentina’s in recent years.
However, economists warn reforms will be successful only if Milei’s hard-won macroeconomic stability remains intact. Many have called for him to overhaul his controlled exchange rate policy, which helped curb inflation but drained central bank reserves, contributing to a dangerous run on the peso last month.
“The government needs a solid strategy to rebuild reserves, which I think is inconsistent with the current policy,” said Martín Rapetti, executive director of Equilibra consultancy. “Without reserves Argentina will always be vulnerable to crisis.”
The government has insisted it will not float the currency in the short term, and pressure on the peso has eased since the election.
But Milei, who last year insulted potential moderate allies as “fiscal degenerates”, has signalled he is changing his approach to the opposition. He is set to meet influential provincial governors on Thursday to seek their support on reforms, and said he would consider adding non-libertarian politicians to his cabinet this year.
“I have to find the votes I need to enact these second-phase reforms that are very important to Argentines,” he said. “I will do what it takes to get results.”