“Non-essential” government activities will cease. There will be a ban on new spending. No new government contracts will be awarded and no new public employees hired. Think of an American government shutdown, except this one mandated by law.
And then came the provision designed to sell all this to the voters: while the shackle remains in operation, everyone from the president down involved in politics will receive no salary.
“Political leaders have no incentive to take care of Argentines’ pockets because they are never the ones who pay for the broken dishes”, Milei said in announcing the measure. Under his system, he promised, “the political class will pay the cost, not the people”.
As political slogans go, it scores highly out of ten.
Because, of course, the ordinary voter may not understand the difference between a primary deficit and a financial deficit. He may have only a vague idea of how government bonds work, what the Central Bank does or how newly created money eventually produces inflation. But be sure of one thing: he understands perfectly well the sentence: “If politicians overspend, politicians do not get paid.”
Argentina Needs Handcuffs More Than Most
In Argentina, of all countries, this has considerable resonance. For generations, governments of both left and right have spent beyond the country’s means, borrowed until the markets refused to lend and then printed money to fill the gap. The costs were dispersed among the population through inflation, devaluation and declining living standards. The political system, meanwhile, carried on largely as before.
Milei’s broader economic package is explicitly intended to make a return to that system more difficult.
The fiscal shackle is, however, at this stage still more announcement than law.
The detailed legislation has not yet been presented to Congress. This means that some of the most important details – how many consecutive months of deficit would trigger the mechanism, how long Congress would be given to respond and precisely which state activities would be deemed essential – remain unknown.
Those details will decide whether the fiscal shackle is a serious institutional reform or merely an exceptionally effective publicity device. One might hope, on balance, that it is the latter – for while the proposal sounds magnificent as a piece of political theatre, it has shaky economic and political foundations.
There are several obvious difficulties.
Shackling the Politicians – or Argentina's Economy?
The first difficulty is that a government deficit is not necessarily produced by a deliberate decision to increase spending.
Tax revenues fall during recessions. Expenditure on unemployment and other benefits rises automatically. Not every deficit is the fault or responsibility of ministers, especially in a global economy.
Indeed, for all Milei’s talk of balanced books, Argentina itself recorded a financial deficit in June this year, despite producing a financial surplus of approximately 0.1% of GDP over the first six months of 2026. The June deficit was partly caused by the postponement of an income-tax deadline and the payment of half-year bonuses to pensioners.
Would that count?
If not, the law will require an extensive collection of exclusions and accounting adjustments. If so, legislators could lose their salaries because a tax payment was moved from June to July.
A more fundamental difficulty is that the purpose of paying legislators is not simply to reward them. It is also to ensure that public office is not confined to the independently wealthy. A rich senator might regard three months without salary as an inconvenience. A legislator supporting a family on his parliamentary income could face financial ruin.
A measure ostensibly designed to discipline the political class could therefore make politics more dependent upon private wealth, outside employment or wealthy benefactors.
Milei the Economist Ignores Economic Theory
Then there is the economic question, where Milei’s background as an economist certainly gives him clout, but where questions should still be asked.
Balanced budgets are generally desirable over the economic cycle. They are not necessarily desirable in every month or under every conceivable circumstance. While Keynes, for example, got many things wrong, it is generally accepted that his idea that government spending should be counter-cyclical – that is, save money in the good times and spend it like Beckham during recessions to stimulate growth – is a sensible one.
Yet, obviously, a rigid prohibition on deficits would become pro-cyclical. When a recession causes tax revenues to fall, the government is forced to cut spending, which further reduces demand, causes more businesses to fail and pushes revenues lower still. A temporary deficit during a war, natural disaster, banking collapse or severe economic downturn may be the least damaging of several bad choices.
The legislation will therefore almost certainly need escape clauses. But every escape clause weakens the shackle. Allow too few exceptions and the rule may become economically dangerous. Allow too many and every future government will discover that its particular deficit is exceptional.
Politicians Handcuffed – But Given the Keys?
The experience of fiscal rules elsewhere suggests that politicians are remarkably inventive when confronted with restrictions on borrowing. Spending is moved off balance sheet. Public-private partnerships are used to disguise liabilities. Forecasts are adjusted. Expenditure is reclassified as investment. Exceptional circumstances become steadily less exceptional.
Argentina’s governments have not historically lacked laws, institutions or solemn declarations of fiscal responsibility. What they have lacked is the political willingness to obey them when obedience becomes painful.
This leads to the simplest problem with Milei’s plan. An ordinary law passed by one Congress can be amended or repealed by the next.
Suppose the fiscal shackle is activated. Government departments close, provincial leaders lose their transfers and hundreds of legislators stop receiving salaries. Those same legislators would have a powerful incentive not merely to balance the budget, but to repeal the law that had stopped paying them.
Unless the provision is entrenched constitutionally, the shackle would simply be unlocked by the people wearing it. If it is entrenched constitutionally, Argentina will have placed an extraordinarily rigid restriction upon the ability of future elected governments to respond to changing circumstances.
Neither option is entirely satisfactory, to put it mildly.
Nor is it quite true that Milei’s shutdown would ensure that politicians, rather than the public, paid the price.
The loss of political salaries would be symbolically important but fiscally trivial. The real savings would come from freezing expenditure, stopping contracts, preventing recruitment and suspending discretionary payments to provincial governments.
Those measures would inevitably affect ordinary Argentines far more than they affected politicians. A construction company denied a government contract employs workers, for example, and those workers would suffer. The same is true across large areas of government spending.
A Signal to the Global Markets?
Yet for all these objections, Milei’s proposal should not be dismissed.
Argentina’s central economic difficulty on the world stage is not that nobody in Argentina understands the danger of permanent deficits. It is that nobody in global markets, having been burnt by experience, believes future governments will resist them.
A fiscal rule can therefore possess value even if it is imperfect. In fact, the more attention Milei draws internationally to his hard-nosed approach to spending, the more the markets may be willing to take a punt on Argentina again.
It is a brilliant political idea, even if it is probably slightly dangerous in practice.
