Congress Go-Slow Raises Fears Over Mexico's Budget Plans

by Mike Godfrey, Tax-News.com, New York

18 October 2001

Mexico's Congress is making slow progress on approving tax reforms to generate some desperately needed income for the government, so much so that it is beginning to raise some concerns over the construction of the 2002 budget.

The Finance Ministry has a deadline of November 15, 2001, to present the next year's budget plan before Congress, but the structure of the budget is dependent on the tax reforms currently under discussion.

According to reports, Deputy Finance Minister Carlos Hurtado has submitted a broad impression of the government's macroeconomic aims for 2002 to congressional budget and finance commitees but it lacked any details of the government's key fiscal deficit aims. However, taking a philosophical approach, Hurtado told reporters: 'If there's fiscal reform approved by Congress before the budget's presentation it will be included in (the budget). If not, it won't.'

In the first week in October President Vicente Fox confirmed that the tax reform package, aimed at increasing the tax base by US$12bn in its first year and boosting the economy, will go through Congress within the next couple of weeks. He said: 'We must build human capital in this country. And we're working on that through putting an initiative in Congress for a fiscal ... a tax reform, which I'm about to get through in the next two weeks.'

But Felipe Calderon, leader of Fox's National Action Party (PAN) has said: 'There are no elements that allow us to say we have any agreements on fiscal (reform). To talk about one or two weeks does not seem to be serious or responsible. It only generates resistance and frustrates negotiation efforts.'

The package of tax reforms was originally sent to Congress in April but it included Fox's controversial plan to impose a 15 per cent VAT on food stuffs and medicines. The proposal attracted a lot of criticism from many politicians (including some from his own party) who argued that the tax would intensify the plight of the country's 40 million poor people. It is not yet known whether this latest round of tax reform proposals includes the VAT.

According to Pablo Alvarez-Icaza, head of economic research at Bursametrica Management in Mexico, the 'worse thing that could happen is that ... the government has to present a budget without fiscal reform being passed.' He told reporters: 'We would enter a period of a lot of uncertainty because the markets will seriously doubt those macroeconomic targets.'

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