For many people this year is already a hostage to the next, with the frenzied flurry of speculation for some time now about the 2027 presidential elections and what could lie beyond. But modernisation is not only threatened by the future – regardless of who will be president, economic transformation can never be complete until joined by the lower provincial and municipal levels of government funded by an obsolete federal revenue-sharing system which has resisted reform for nearly four decades now. The challenge thus also lies in the here and now, not what might happen next year.
President Javier Milei might wield his chainsaw with fiendish gusto but if his domain only extends to a diminishing 20 percent of Argentina’s 3.8 million public employees (of whom two-thirds correspond to provincial governments while the remaining 13 percent are municipal), the impact is obviously relative. This provincial dominance of state payrolls thus calls for more attention to that level of government.
Here the federal revenue-sharing system is important as not only a prime culprit for current dysfunctional inconsistencies but also as the national government’s main wedge into provincial autonomy. Indeed this nominally federal system is highly centralised with all the revenue inflow into the national Treasury which can pay out at discretion.
Nevertheless, the outstanding feature of this system is its rigidity. To be overhauled (as mandated by the 1994 constitutional reform before the end of the year 1996, three decades ago now), any new law must be approved by an absolute legislative majority in every single province, which is asking the impossible – something akin to Poland’s liberum veto (the right of any single nobleman to quash a law and dissolve a session) in the 17th century which ended in partition in the 18th.
The chief flaw of this system is its lopsided distribution which penalises the productive and rewards the parasite. The back and forth of revenue-sharing cuts between Buenos Aires City and Province in the past 10 years has had the two administrations at each other’s throats but in fact they are both victims of this system and should objectively be allies. Together with Córdoba and Santa Fe, BA City and Province account for 70 percent of the economy and over 60 percent of the population but receive barely 40 percent of the federal revenue-sharing pie. The fact that most of the other 20 provincial governments are beneficiaries of this disparity creates a huge majority in favour of conserving this system and that army of over two million provincial employees is often the result of the strongmen in smaller provinces using their extra share to swell a dependent public sector at the expense of the private sector in the productive heartland.
This situation has prevailed for decades but Argentina is changing, even if not as fast or as positively as Milei might like. The shift of wealth and population from the Greater Buenos Aires industrial belt to inland mining, farming, oil and gas is only now starting to be visible. These sources of wealth lie outside the federal revenue-sharing system – the national government pockets all the grain export duties while the provincial governments lay claim to all the royalties on mining, Vaca Muerta shale, lithium, etc. (where national rights have often been waived under the RIGI incentive scheme for major investments). Not all provinces are blessed with such natural resources, which could lead to new disparities arising alongside the old.
Since the nine presidents since the current federal revenue-sharing Ley 22,548 of 1988 (not counting such brevities as Federico Pinedo) have all failed to find a solution, Argentina could do worse than take a look at fiscal federalism elsewhere in the world – such countries as Australia, Brazil, Canada, Germany and Switzerland spring to mind. No space here to explain them in detail but amid varying degrees of centralisation and decentralisation, they tend to place a greater fiscal responsibility on the state governments (especially the German) in contrast with the irresponsibility fostered by federal revenue-sharing here.
So much for the current state of federalism but for those placing all their bets on next year’s elections, the governors may not be going away any time soon in the future either. Virtually every provincial governor is already planning the dates to advance next year’s provincial elections in order to keep their régimes immune from any national momentum.
Nevertheless, confidence in Milei’s re-election or a Peronist backlash as virtual certainties could change some strategies, depending on how much the governor empathises with or opposes the libertarian administration. Most provinces are grey areas in this respect. Only five provinces (Buenos Aires, La Rioja, La Pampa, Tierra del Fuego and Formosa) remain in Kirchnerite hands where there are no ambiguities about La Libertad Avanza strategy – all-out opposition to the provincial government running their own candidates with whoever wants to join them. At the other end of the spectrum there are only three provinces considered so firmly aligned with Milei that governors from other parties might even be allowed to survive there in any electoral deal – deeply conservative Mendoza (although former Defence minister Luis Petri might have other ideas), Chaco and Entre Ríos.
Other provinces might possibly join the latter group but they are currently on probation until the government is convinced of their parliamentary loyalty with upcoming legislation – the two Sans (Juan and Luis), Catamarca and Tucumán with the latter two governed by Peronists (Raúl Jalil and Osvaldo Jaldo) up for re-election. The northwestern provinces of Salta, Jujuy and the Patagonian provinces of Santa Cruz, Neuquén and Río Negro are perhaps less close to a deal but all belong to the same grey area with the remaining Patagonian province of Chubut (governed by PRO) blowing hot and cold.
This leaves us with just five provinces – Radical Corrientes, Misiones and Santiago del Estero (both ranking as the most sui generis provincial governments in Argentina) and the two heavyweights of Córdoba and Santa Fe. The libertarians have scant tolerance for either of the latter’s governors, although even less for Córdoba Peronist Martín Llaryora than for Radical Maximiliano Pullaro – after taking three-quarters of the vote in the 2023 run-off (even if down to 42 percent in last October’s midterms), the Mileis are convinced that Córdoba is theirs for the taking but libertarian strategy is slightly more cautious in Santa Fe.
In a word, the key to the future does not only lie in next year’s national elections but in the hinterland now.
