(Adds background on tax cut)
BUENOS AIRES, May 4 (Reuters) - Argentina will reduce income taxes for workers at the low end of the taxable-income scale, Economy Minister Axel Kicillof said on Monday, announcing a costly move that could help stave off conflict with unions ahead of October’s elections.
The tax cut addresses a key complaint of powerful labor unions: that because tax brackets have not been adjusted, more workers are paying more tax as wages are lifted to keep pace with soaring inflation. Private economists estimate Argentina’s inflation rate at between 25 and 30 percent.
Kicillof said the government will reduce tax for workers earning between 15,000 and 25,000 pesos a month (about $1,700 to $2,800), which should affect 68 percent of those who pay tax and possibly boost private consumption in the stagnant economy.
Unions are currently negotiating yearly pay contracts and the government will want to avoid politically damaging protests in the runup to October’s presidential election.
President Cristina Fernandez cannot run for a third straight term but unrest could hurt the presidential nominee of her governing party.
“We are modifying the scale by which income tax is paid to make it even more progressive,” Kicillof said in a televised news conference. “Those who have less salary will pay less tax than what they are paying today.”
Kicillof said the reform will cost the government 6 billion pesos ($673 million) a year in tax revenue.
In a one-day general strike in March over demands for changes to income tax, Argentina’s public transport networks ground to a halt, port workers in the grains export hub of Rosario downed tools and banks shuttered their doors. (Reporting by Hugh Bronstein and Eliana Raszewski; Additional Reporting by Sarah Marsh; Editing by Jeffrey Benkoe; and Peter Galloway)