In May, a different official from the OECD said that Mexico had to either raise taxes or cut expenses, but did not seem to favor one option over the other (at least, not in the report). I speculated then such a recommendation might give the parties the political cover necessary to support a tax increase. I guess that's out the window; in any event, the PRI never seemed to consider that recommendation.
As far as the recommendation that tax increases wait until after the crisis passes, one tricky part of that is once revenues start to rise with a growing economy, the present urgency to fix the tax structure will also likely disappear.
2 comments:
Well, two points.
(1) Nothing wrong with borrowing right now. I suspect that Ramos was taken out of context and not calling for an immediate fiscal retrenchment.
If she wasn't taken out of context, then it was a silly thing to say.
(2) I don't agree about the politics. Mexico will still have some serious pressures on it to raise spending on law enforcement, education, and (probably) energy investment. Voters will like all of that. At the same time, oil revenues are likely to continue declining.
On the other side of the ledger, interest rates on government debt are likely to rise if the markets conclude that the country has gone back to running structural budget deficits. Right now we're still skirting with depression, so the government can borrow a lot without depressing bond prices. That won't last, and voters will not find a rise in interest rates particularly pleasing.
Add those together, and I don't see the pressure for tax reform abating. Perhaps the reverse, in fact.
I concede to your logic on the second point.
Kind of off-topic: I dont know if you've investigated this much, but I was talking to a small business owner, and he made it sound like paying paying taxes was very much a matter of negotiation with the inspectors. It sounds like the give and take in a market. The inspector doesn't just needle him to pay his full percentage, but enough so that it doesn't make a mockery of the Hacienda and raise questions from his superiors. Maybe the business-owner was exaggerating, but that suggests that it's not only loopholes but also a culture in the in the Hacienda of not being big-time ball-busters that tamps down revenue.
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