Correction to Argentina Tax Cut Story

By Taos Turner Features Dow Jones Newswires

President Mauricio Macri, buoyed by a sweeping nationwide victory in midterm congressional elections Sunday, vowed to push ahead with tax cuts and austerity measures aimed at overhauling Argentina's economy.

Continue Reading Below

Mr. Macri, speaking at a news conference, defended a decision to raise gasoline prices by about 10% on Monday, just hours after the election, saying this is necessary to reduce a bloated fiscal deficit and curb double-digit inflation.

"We can't keep taking on debt forever and Argentines can't afford to pay more taxes, so we have to move towards lowering taxes too," Mr. Macri said.

Mr. Macri said his top priority is to reduce a 28.6% poverty rate and that this requires lowering inflation and cutting costly government subsidies for some public services. He reiterated plans to cut the fiscal deficit to 3.2% next year and 2.2% in 2019.

The president plans to submit bills to Congress soon to overhaul the tax code, cut the deficit and make it less expensive to hire and employ workers, officials say.

Mr. Macri was elated by the election results. His ruling Let's Change coalition won more than 40% of the vote nationwide, virtually unprecedented for a new political movement in a country long dominated by Peronism, an ideologically diverse political platform loyal to big labor unions. The coalition picked up 21 seats in the Lower House of Congress and nine in the Senate, winning key elections in Argentina's five most populated districts -- the first time that's happened since 1985.

Continue Reading Below

"Macri's electoral sweep in the regions solidify his ability to drive through further economic reforms in the next two years and enhance his chances in the 2019 presidential elections," Exotix Capital said in a report Monday.

Argentina's currency strengthened 15 cents to 17.50 to the U.S. dollar early Monday, reflecting expectations that investors may inject more dollars into the economy.

Federico Sturzenegger, the head of Argentina's central bank, has long said that an influx of foreign investment dollars could pressure on the peso. And investors may now be more likely to bet on Argentina, especially given the poor performance Sunday of Mr. Macri's populist predecessor, Cristina Kirchner.

Mr. Macri's top Senate candidate in Buenos Aires province, Esteban Bullrich, outpolled Mrs. Kirchner by about 41% to 37%, potentially weakening her hopes of regaining control over the Peronist movement. Though Mrs. Kirchner won one of three Senate seats at stake in the province, her failure to beat Mr. Bullrich could embolden her Peronist rivals, many of whom support Mr. Macri and don't want her in the presidency again.

Still, Mrs. Kirchner has made unexpected comebacks in the past and Mr. Macri's plans to keep raising public utility prices could prove unpopular with middle-class voters. The decision to raise fuel prices on Monday shows how critical such measures are for the administration.

Though Mrs. Kirchner's defeat is a boost to Mr. Macri, it also "lifts the threat of the return of the left-wing, populist Peronism she espouses," Verisk Maplecroft analyst Jimena Blanco said in a note to investors.

Administration officials, though, are aware of the unpopular nature of some of their policies. Mr. Macri's cabinet chief, Marcos Peña, said Monday that the government will invest more in social programs than any presidency in history.

Mr. Peña also said the government will continue its gradualist approach to overhauling the economy and doesn't plan to make abrupt changes to public policy.

"We will be there for the most vulnerable sectors," Mr. Peña said.

Write to Taos Turner at taos.turner@wsj.com

Corrections & Amplifications

This was corrected at 1:07 p.m. ET because the original incorrectly stated in the fourth paragraph that the plans were to reduce the deficit to 3.2% this year and 2.2% in 2018.

Argentina's president, Mauricio Macri, reiterated plans to cut the fiscal deficit to 3.2% next year and 2.2% in 2019. "Argentina's President to Move Forward With Tax Cuts, Austerity Measures," at 12:25 p.m., incorrectly stated in the fourth paragraph that the plans were to reduce the deficit to 3.2% this year and 2.2% in 2018.

(END) Dow Jones Newswires

October 23, 2017 13:19 ET (17:19 GMT)