Mexican President Pena Nieto unveils radical tax reforms

Pena Nieto announces aim to close loopholes and lessen dependency on state oil revenue

PUBLISHED : Tuesday, 10 September, 2013, 12:00am
UPDATED : Tuesday, 10 September, 2013, 2:41am


Pressing ahead with plans to reshape Mexico's economy, President Enrique Pena Nieto has announced a sweeping overhaul of his country's tax system, intended to collect billions of dollars to finance new social programmes.

In a speech on Sunday, Pena Nieto described the broad outlines of his plan, which would eliminate many loopholes and exemptions that favour the richest Mexicans. He proposed new taxes on capital gains, carbon emissions and soft drinks.

Pena Nieto said his proposal was good news for families because the revenue it would generate would pay for a new universal pension for all Mexicans over 65, and for introducing unemployment insurance.

The Mexican government currently collects just 10.6 per cent of the country's annual economic output in taxes, less than almost any other country at its level of development.

With so little tax revenue, the government has financed itself by squeezing money from Pemex, the state-owned oil monopoly, to pay for 30 to 40 per cent of public spending. Pena Nieto is now pushing to open up the energy industry and reduce this dependency.

"We collect few taxes because we have oil," said Juan Pardinas, the general director of the Mexican Institute for Competitiveness, a research body. "That allows us to pay less in taxes and allows the state to make little effort to collect them."

Since taking office in December, Pena Nieto has been able to work with the two main opposition parties to rewrite Mexico's public education laws and promote competition in the telecommunications industry.

Under an agreement, known as the Pact for Mexico, between his party and the opposition, he is trying to inject dynamism into an economy that has failed to grow any faster than 2 per cent a year, on average, since 2001.

"In the next months, we will be deciding what history we are going to write for the next decades," Pena Nieto said last week in the annual presidential address on the state of the nation.

The pact has worked smoothly on issues where there was broad agreement, but the political divisions over energy policy and taxes are deep.

Opposition parties say that the next priority should be passing new electoral laws to combat the vote-buying practices that they accuse Pena Nieto's party of using. And when it comes to taxes, nobody seems to want to take the lead.

"The government is 100 percent in charge of this," Gustavo Madero, president of the conservative National Action Party, said. "Let the government defend it."