Argentina’s President Javier Milei announced Monday that he would shutter the Federal Administration of Public Revenue (AFIP), the Argentine equivalent to the U.S. Internal Revenue Service. The institution will be replaced by the Agency of Customs Collection and Control (ARCA), with a new structure reorganized to increase the efficiency of customs and tax administration. As part of the restructuring, the government will eliminate 34 percent of the current AFIP workforce, which it estimates will save the nation some $6.5 million annually.

In addition to cutting staff positions, the government will also adjust the salary structure for the new agency. This includes dramatically reducing the salaries of top officials in the tax bureaucracy, whose pay has ballooned far higher than most positions in the Argentine government. The director of AFIP was receiving a salary equivalent to more than $365,000 a year, an astronomical figure in the South American nation. The new director of Arca will receive a salary equivalent to that of government ministers, approximately $50,000 annually—a cost reduction of more than 86 percent.  Also to be eliminated is the system of incentives known as the “account ranking,” in which a certain proportion of tax revenues is distributed among the employees of the administration to reward the effective collection of taxes. The arrangement made AFIP employees some of the best-paid in the government, but also provoked resentment from citizens and contributed to its large budgetary footprint.

The reform also has a political angle. The president’s statement notes that the reform will “eliminate 3,155 agents who entered AFIP in an irregular manner during the previous Kirchnerist government, totaling 15 percent of the current staff. This step is indispensable for dismantling the unnecessary bureaucracy which has obstructed the economic and commercial liberty of Argentinians.” The government believes that the purging of Peronists from the tax administration will result in an institution that is much more responsive to leadership and more supportive of the economic priorities of Milei’s administration, which has made the reduction and rationalization of the Argentine tax code a key point of its political program.

The restructuring is also a strike at rival politician Sergio Massa, a dissident Peronist leader in Argentina who was Milei’s opponent in the runoff for the Argentine presidency in 2023 after Milei unexpectedly prevailed over Patricia Bullrich, the candidate of former president Mauricio Macri’s mainstream conservative party Propósito Republicano. Elements of Massa’s Peronist coalition quietly assisted the new libertarian party by supplying much-needed technical expertise in a ploy to weaken and divide the opposition. When Milei accomplished his shock triumph over first the mainstream Argentine conservatives and then Massa’s own Peronist coalition, some of Massa’s allies ended up in the new libertarian government by what probably seemed to both sides a perverse chance.

AFIP was one of the principal power bases of Massa’s Peronist allies in the government. Now that the libertarians have had the chance to accumulate experience in governing and acquire a significantly larger pool of allies and accomplices to draw from, Milei is apparently taking the opportunity to eliminate this liability and strengthen the hand of elements more inclined to cooperate with him and support his political objectives in the long term.

The move signals growing political self-confidence in the libertarian sector of Argentine politics, which was hampered in its early days by a lack of organization and manpower that made it difficult to effectively contest elections and fill the various offices of government necessary to administer the state. However, Milei and his political allies—especially his chief political advisor, Santiago Caputo—have proven adept at co-opting and absorbing allies and partners into the new bloc, including Milei’s former opponent for the presidency, Patricia Bullrich, who now serves as the minister for national security and is one of the president’s most faithful allies. Power, too, has its benefits, and with the libertarians having proven themselves on the national stage, they will have a much wider pool of potential candidates and a stronger party structure to draw on for the upcoming legislative elections.

Milei’s announcement of the dissolution of AFIP and its reorganization into ARCA was greeted with a broadly positive response from the public. AFIP has never been popular among Argentines—an unsurprising fact for a tax agency—and its demise was received with celebration. In Congress, the opposition was also largely supportive of the change, recognizing the need for a more streamlined and efficient service to manage state revenues. Nevertheless, some legislators proposed that the savings from the reform should be put to use for other priorities, including funding Argentine universities. (A prior proposal to increase state funding for universities was vetoed by Milei earlier this month.) The government has declined to consider such a move, with Federico Sturzenegger, Minister for Deregulation and State Transformation, saying “that possibility is not in play.”