Argentina's fiscal surplus shrinks as economic activity weighs on tax revenue

Argentina's fiscal surplus is showing signs of deterioration, primarily driven by a significant drop in tax revenue tied to economic activity. A report from Barclays indicates that taxes related to economic performance and labor income are responsible for 60% of the real decrease in government income observed between the first half of 2023 and the same period in 2026.

The cooling of key sectors like industry, construction, and commerce contrasts with growth in agriculture, mining, and energy. This uneven economic landscape leaves less room for tax reductions aimed at stimulating the economy, a move that could otherwise bolster public finances. Barclays' analysis, which covers major revenue sources like VAT, income tax, social security contributions, and financial transaction taxes, identifies two distinct factors behind the revenue decline: deliberate tax cuts and the unintended consequence of weak economic activity and stagnant real wages.

This situation marks a shift from the initial phase of the current administration's fiscal adjustment, which heavily focused on expenditure cuts. Barclays notes that these spending reductions have been more sustained than many market observers anticipated. In the first half of 2026, social spending decreased by 14% compared to the same period in 2023, subsidies fell by 61%, and capital expenditure dropped by 85%, collectively accounting for about three-quarters of the total reduction in public spending.

While revenue linked to economic activity has shown persistent weakness, the overall revenue collection has begun to recover from its April low. However, the current challenge lies in the income side, with Barclays calculating that revenues are 2.6% of GDP below 2023 levels. Consequently, the primary surplus over the past 12 months has shrunk from a peak of 1.8% of GDP in January 2026 to 1.2%. Barclays expects the primary surplus to close 2026 at 1% of GDP, falling short of the 1.4% target set with the International Monetary Fund, though the bank does not deem public finances unsustainable.