Uruguay’s new leftist government plans to reduce the budget deficit through tax increases At the beginning of his mandate to avoid cuts for politically controversial or additional taxes later, according to Finance Minister Gabriel Oddone.
The mandate granted to President Yamandu Orsi in the elections last November “is not a chainsaw,” Oddone said in an interview. “People do not believe that the State is corrupt. Uruguay’s social contract is guaranteed by the State”.
Orsi’s measured approach to clean up public finances contrasts with the severe austerity promoted by the libertarian leader of neighboring Argentina, Javier Milei, who has fired thousands of officials and closed entire ministries. The spending cuts would have generated huge political tensions and violated the government’s campaign promises, Oddone declared Monday in his Montevideo office.
The Government, which began its five -year mandate in March, requests from Congress greater tax revenues to reduce a greater deficit than expected and fulfill its commitments to increase spending on social and police programs. Oddone’s budget proposes to increase public income by 1.6 percentage points of the gross domestic product by 2029, mainly through a more efficient fiscal collection, a minimum global tax of companies for multinationals and new encumbrances, such as the tax on tax -free packages. These measures should generate enough income to start reducing the deficit significantly in 2027, according to the Minister of Finance.
The budget provides that the deficit is reduced to 2.6% of GDP in 2029, when Uruguayans must choose a new president and congress, from 4.1% of this year. Critics claim that the government runs the risk of not reaching these goals if it addresses the deficit in the second half of Orsi’s mandate, when it will face political pressures to increase spending before elections. S&P Global, Moody’s Ratings and Fitch Ratings have affirmed the credit grade grade qualification and the stable perspective of Uruguay in the last 12 months.
“If the forecasts on global growth and perspectives do not hold surprises, this tax convergence scenario is sufficient to stabilize the debt/GDP ratio” At sustainable levels, Oddone said.
Uruguay’s commitment to political and economic stability is paying off. Investors have invested billions of dollars in cellulose plants in recent decades, and Google, from Alphabet Inc., is building an important data center near the capital. The founding billionaires of the largest technology companies in Latin America have housing in the country of 3.5 million inhabitants, located between Argentina and Brazil.
However, an expensive welfare state is still failing many residents, especially children under 6 years of age, whose 32% poverty rate is more than five times that of the elderly. Orsi’s wide leftist party controls the Senate, but needs two opposition votes in the lower house to approve the Quinquenal Financial Plan. Oddone did not rule out other measures to control the deficit if the Congress does not approve the increase in taxes or if government income is insufficient.
“All tools are on the table and all can be used depending on the stage because fiscal stability is key” For social stability, he said.
Oddone’s budget foresees an average growth of 2.4% annually during the government’s mandatecompared to just 1.1% in the previous decade, when pandemia and droughts whip the economy.
The Government seeks to facilitate business activity in Uruguay through the reduction of bureaucratic procedures, the reduction of export and import taxes and the speed of the process of approval of tax exemptions to investment. Oddone did not rule out offering lower electrical rates to high energy consumption projects, such as data centers and green hydrogen plants.
At least three companies are considering Uruguay to house new data centers, according to Isabella Antonaccio, who directs the unity of free zones of the Ministry of Finance. “Uruguay is not the only eligible place,” he said. “As a country, we are actively working for Uruguay to be the chosen headquarters if they occur in the region.”
