Topsy Turvy

By Global Tax Weekly

I am trying to get my head around the announcement from Argentina that it will increase taxes on luxury goods “in order to make more money available for imports that will improve domestic output.” OK, so the Government will have more money, and the people who buy expensive toys will have less money. How is that going to increase “useful” imports? It must have to do in some obscure way with the fact that the peso (at its official rate) is grossly over-valued against the dollar and inflation is far higher than the Government admits. It won’t work, anyway: Argentines have had decades of practice at getting around official currency restrictions imposed by spendthrift governments, and are famously inventive at it. One good thing the Government did this week, at least, was to open negotiations with Repsol over compensation for its expropriation of YPF oil and gas assets last year, although the amount being talked about, at USD5bn, was half what Repsol said it was due at the time. The Government hopes that a settlement will attract Pemex into financing exploitation of Argentina’s vast shale hydrocarbon reserves, reportedly the biggest in Latin America. I don’t understand that, either, because Pemex itself is heavily under-invested, and every penny that it has is siphoned off by the cash-strapped Mexican government, which is trying to get the international oil and gas majors into bed with Pemex (in order to rob them in the darkness?). I don’t get it at all; but perhaps things work differently on the other side of the equator.

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