March 9, 2015 / 5:20 PM / 4 years ago

Argentina considers income tax change in pay talks with unions

BUENOS AIRES, March 9 (Reuters) - Argentina’s government is considering raising the minimum threshold on income tax as a sweetener in salary talks with trade unions to avoid unruly protests in the run-up to October’s ‘s presidential election, a senior government official said.

Inflation surged about 35 percent in 2014, private economists estimate. A similar pay hike for public workers would strain the government coffers, meet resistance from private companies and stoke inflationary pressures amid a stagnant economy.

Strikes already loom. Transport unions demanding lower taxes threaten to halt buses, trains and trucks at the end of March. The muscular CGT union is weighing up whether to join in.

“The question of strikes worries us,” the government official said, requesting anonymity because of the issue’s sensitivity. “There are unions which are playing for the government to lose the election.”

“A change to income tax is being looked at, with a view to raising the minimum threshold,” the source said.

The prospect of strikes is another headache for President Cristina Fernandez, fighting falling approval ratings following the death of a state prosecutor who leveled criminal accusations against her and the ravages of inflation which the government pegged at 23.9 percent in 2014, below many private measurements.

Strikes are common in Argentina when unions knuckle down to wage negotiations. But the government will want to avoid more politically damaging social unrest that might hurt the future nominee of the ruling party.

Fernandez cannot hold a third straight term. Polls show the most likely ruling party candidate, Daniel Scioli, running second to the pro-business opposition mayor of Buenos Aires, Mauricio Macri.

Asked in a radio interview if the level of income tax had been discussed with Fernandez, Economy Minister Axel Kicillof said: “We are always having this discussion.”

Increasing the lowest income tax threshold would address a key complaint of unions: that more workers pay tax if double-digit salary hikes designed to keep apace with inflation are awarded without lifting the lowest tax bracket threshold.

“Each time a salary deal is signed a bigger chunk gets eaten up as tax,” said Omar Perez, a leader of the Truck Drivers Union.

Fernandez last raised the minimum threshold in August 2013, ahead of mid-term elections.

“Pressure for higher salaries is going to increase, especially with a government that is on its way out,” said political analyst Graciela Romer. (Writing by Richard Lough Editing by W Simon)

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