Federal co-participation: ups and downs, winners and losers of the distribution of funds in the last 30 years

The discussion for the federal co-participation always gives cloth to cut. The regulatory changes during the last 30 years have generated disagreements, discussions and nonconformities of the different provinces, which formalized claims to the Nation in various ways. For this reason, it is interesting to analyze who were the big winners and losers in the distribution of resources in the past three decades.

A study of Argentine Institute of Fiscal Analysis (Iaraf) tries to summarize what happened during that period, quantifying both the primary and the effective secondary distribution, beyond all existing regulations on federal tax sharing.

The work incorporates an important aspect to the discussion on distribution. “Since both the province of Buenos Aires like CABA compensations related to changes in the automatic distribution of resources have been given during the last years, it is considered essential to incorporate those non-automatic resources in the calculation of the effective coefficients, both primary and secondary. An example allows to clarify this point”, says a passage.

“The reduction that the CABA coefficient had at the end of 2020 had in parallel the determination of the sending of non-automatic funds to the jurisdiction. These funds should be considered in the analysis. Otherwise, the participation of the provinces and of CABA in the collection would be underestimating and, obviously, the participation of CABA in the secondary distribution”, they completed from Iaraf.

The current tax sharing system is based on the Law 23,548 of the year 1988 with its amending and complementary laws, permanently subject to debate as long as they are not based on objective bases to establish the distribution of resources, at the same time that by constitutional mandate of the 1994 reform they should have been replaced in 1996 by a new institutional arrangement.

For Iaraf, a particularity that goes to the heart of the distribution debate is the case of CABA, which, although it is considered a member of the group, obtains its co-participation percentage from the legal participation of the National Treasureso that everything that happens legally with CABA (such as the current increase in its coefficient from 1.4% to 2.95% established by the Supreme Court from 2023) affects both the effective primary and secondary distribution.

To analyze what has happened in the last 30 years, Iaraf recalled that initially, Law 23,548 established that the total co-participating resources would be distributed in 42.34% for Nation56.66% for provinces and 1% for a National Treasury Contribution Fund (ATN) whose destiny was to deal with emergency situations and financial imbalances of the provincial governments. But along the way, many changes were introduced, such as deductions prior to primary distribution or on the co-participating mass destined for a certain sector, also called “pre-co-participation”.

Between 2003 and 2015 the distribution to the provinces stabilized well below what it had been in the 1990s, but it grew again starting in 2016

Specifically, it was established that the national government was authorized to withhold 15% plus a fixed sum of 43.5 million pesos per month from the co-participating mass in order to finance the Forecast System or retirement and other operating expenses. Then the percentage assigned to Land of Fire from 0.388% to 0.70%, modifying the definitive legal coefficients of the co-participation regime. Later on, and in the context of the 2002 crisis, the “Nation–Provinces Agreement on Financial Relationship and Bases for a Federal Tax Coparticipation Regime”.

As can be seen in the graph, after a sharp fall during the 2002 crisis, between 2003 and 2015 there was a stabilization of the participation of the Provinces and CABA on the taxes collected at the national level at around 40%, much lower. below the participation that the subnational districts had had in the nineties, when -for instance- the then governor of Santa Cruz, Nestor Kirchner praised the president Carlos Menem as the Argentine president who since Perón had done more for Patagonia. That province was also privileged with a special arrangement for “ill-liquidated royalties” in exchange for the Kirchnerist vote in favor of the privatization of YPF, and with huge national aid funds, well above the dimension of the problem, due to the damages that in 1992 it caused the eruption of the Hudson volcano, on the Chilean side.

As of 2016, however, the share of the provinces as a whole in the distribution of funds improved again. First, the national government decided to restore the pre-coparticipation to the provinces (at Santa Fe, San Luis and Cordoba, by leaving them to make the deduction at the end of 2015), in an amount of 20% per year, reaching the full return of 15 points in 2020. Second, through the Decree 195/2016 CABA’s coefficient was increased from the 1.4% established in 2003 to 3.75%, “in order to ensure the fiscal and patrimonial development that allows to continue consolidating the organization and institutional functioning”, which after the Fiscal Consensusin 2018 it was reduced to 3.5 percent.

Later, in 2018, as a result of the “fiscal consensus”, the gross co-participating mass was increased, in part by incorporating the funds from the suspension of specific deductions from Profits for Anses. In addition, it established a compensation system to prevent the provinces (except Buenos Aires) from seeing their situation change compared to 2017.

This led to the fact that in 2019 and 2020 the participation of the Consolidated Provinces + CABA in national tax collection it will fluctuate around 50%, the highest proportion in almost 30 years and ten points above what it had been in the first three Kirchner governments.

Finally, at the end of 2020, the Autonomous City of Buenos Aires there was a change in the primary coefficient of distribution of national resources, which, in effect, was a drop from 3.5% to 1.4%. By the end of 2022, the Supreme Court of Justice issued a precautionary measure ordering CABA to deliver 2.95% of the co-participating funds and, at the same time, to withdraw the funds it obtained through the Treasury Obligations account to finance the security force’s spending.

In this context, if the evolution of the participation coefficient of each jurisdiction in the primary distribution of the last 30 years is analyzed, it is found that only ten managed to grow in recent years. CABA was the one that presented the highest growthfollowed in the ranking by the provinces of chaco, Land of Fire, Santa Fe Y Córdoba, while the remaining districts had relative losses of variable amounts.

Having defined the evolution of automatic resources, the haraf deepened the analysis of the distribution between provinces and CABAthat is, in the secondary distribution.

In this case, the participation of the Buenos Aires province due to its variable evolution. In the three years after the implementation of the Buenos Aires Conurbano Fund in 1992, its effective secondary coefficient (that is, the share actually received of the total sent automatically to the provinces and CABA) was close to 25%.

“With the cap of $650 million established for said fund in 1996, the participation stabilized just under 24% until 2002. The failure to update this cap in an inflationary economy such as that of the following years, led to the secondary participation of the province to fall year after year until reaching the historical minimum in 2016 (18%) ”, they specified from the organization.

CABA, for its part, strongly increased its secondary participation in 2016, after the modification through Decree 194/2016 of its primary coefficient, which went from 1.4% to 3.75% (which fell back to 3.5% with the Fiscal Consensus of 2018) and in 2021, CABA lost 2.3 points of its secondary participation with the fall, again, to 1.4 percent. In a way, one could say that Buenos Aires and CABA were winners distribution during the last eight years, a recovery that caused the secondary participation of the other provinces to decrease.

Keep reading: