Mexico Faces Austerity Measures To Fix Revenue Gap

by Mike Godfrey, Tax-News.com, Washington

29 July 2009

Mexico’s Treasury Secretary Agustin Carstens has announced that the government will submit 2010 budget fiscal reform proposals to address a MXN480bn (USD36bn) revenue shortfall in the wake of falling oil revenues. Government spending is to be cut by an additional MXN50bn (USD3.8bn) this year. An MXN35bn (USD2.6bn) budget cut had already been introduced in May.

In total, the MXN2.3 trillion (USD174bn) 2009 budget will have been cut by 3.6%. This should result in a deficit of 1.8% of GDP. Mr Carstens said that the budget cuts would not affect social programs or spending. The government has committed to eliminating its budget deficit by 2012.

Mexico's economy contracted by 8.2% in the first quarter. Its close trading relationship with the US, which buys about 80% of its non-oil exports, has made Mexico the hardest hit by the US recession of all Latin American countries. Mexico has suffered particularly from falling exports of cars and refrigerators. Mexico is one of the world's leading exporters since joining the North America Free Trade Agreement with the USA and Canada in 1994.

The finance ministry's prime objective with regard to fiscal reform will be to find ways of stimulating non-oil revenues in a sustainable way; despite stating it is still working on specific proposals for tax reform, for the present, it could not give additional details.

Recommended