Milei kept his promise to cut taxes. The problem is he might have gone too far

Javier Milei, the libertarian candidate for the 2023 Argentine presidential election, pledged to slash taxes during his campaign, with inflation reduction being his other primary promise. Since taking office in December 2023, Milei has largely delivered on his tax-cutting pledge, according to a recent survey by the Argentine Center for Fiscal Analysis (IARAF). The survey estimates that tax revenues have fallen by 3% of GDP since Milei's administration began.

The largest reductions came from the PAIS tax, which expired by law in December 2024 and was responsible for 43% of the drop in tax revenue. Export taxes and personal property tax followed, with declines accounting for 19% and 18% of the total, respectively. Additionally, the Milei government raised the fuel tax by 55% and the income tax by 36%, impacting thousands of taxpayers who had stopped paying following a reform during the previous administration.

However, the aggressive tax cuts may have led the government into an "austerity trap." With economic growth not keeping pace with the tax cuts, the government has had to cut spending to maintain a fiscal surplus. This reduction in spending, in turn, has slowed the economy, leading to lower tax revenues and further necessitating cuts. This cycle could potentially undermine the initial economic gains from the tax reductions, creating a challenging situation for the Milei government.