The project of Work modernization that the government will present this Tuesdaybefore it is sent to the Senate to begin its legislative consideration, represents a significant change to the law Financing the severance payment scheme: the creation of the so-called Labor Assistance Fund (FAL) which is supported by a compulsory contribution from companies amounting to 3% of the wage bill. According to an official initiative document to which he had access Clarionthis post will be deducted from the pension contribution to SIPA (Argentine Integrated Pension System), which would mean indirect financing of compensation payments by the state.
“Employers included in this scheme, and for as long as its effect lasts, will do so a reduction of the employer contribution to SIPA by three percentage points“, punctually expresses the executive project that will be presented this Tuesday in Casa Rosada together with the members of the so-called May Council, led by the Chief of Staff Manuel Adorni and the Minister of Deregulation Federico Rumpfenegger, and also composed of the Governor of Mendoza, Alfredo Cornejo, and legislative representatives of the UIA and the CGT.
This advantage of reducing the contribution to the pension system to finance the constitution of the new FAL will bring the consequence Decrease in collections for retirement and pension payments and defunding the ANSES. Added to this are the effects of a general and permanent reduction in employer contributions for the current workforce and in benefits for employers hiring new employees.
According to various forecasts, the loss of income for the pension system alone could be around 3% due to the 3% reduction in contributions that would be foreseen under the new FAL 2.6 billion dollars annually (taking into account the average gross salary for August reported to SIPA according to data collected by the Ministry of Labor) and trepairs up to 4.7 billion dollars per year if the remuneration for dependent work recorded in the INDEC system of national accounts is taken into account.
However, in addition to the reduction in income of the pension system as a result of the formation of the FAL, there is also the effect the permanent reduction in employer contributions that the reform applies to the workforce currently employed, i.e. to employees who are already registered. In this sense, the initiative sets up a Reduction of the employer contribution to social welfare by 1%which will increase from 6% to 5% with the initiative. This would mean a loss of revenue to the system of around $1 billion per year and, in the case of dependent employees who receive their contributions from private medical companies, it would be necessary to directly finance the 1% reduction in the employer’s contribution to the system.
The Milei government’s initiative also envisages a permanent cut 3% on employers’ payroll contributions intended for the social security subsystems (SIPA, family allowance system, National Employment Fund and PAMI). For this purpose, the following differentiation is established: for employers in the service and trade sector, the contributions are reduced from 20.40% to 17.40%, for other employers in the private sector the reduction is from 18% to 15%. These benefits would mean a Lost income for Social Security by about $3 billion per year.
Furthermore, it would add the impact of the new New Employment Incentive Regime (RIFL) which is integrated into the reform and sets a series of preferential rates for the employer contributions of those employers who hire new workers, provided that they meet the requirements set out in the initiative. The impact on the revenues of the social security subsystems will depend on the number of companies joining the system.
“Through various mechanisms, the project aims to reduce labor costs, promote the creation and formalization of jobs, encourage new investments and simplify administrative burdens,” the document explains the importance of the sharp reduction in employers’ contributions. However, industry experts interviewed by this newspaper warned of the impact on the financing of social security and recalled the impact on the pension system of the reduction in corporate contributions ordered by former Economy Minister Domingo Cavallo in 1994 during the Menem administration before the introduction of the AFJP system.
About The Author
