Mexico’s reliance on deficit spending to fund environmental, social and income redistribution programs is a rising concern for its long-term fiscal situation. This is a challenge compounded by its historic reliance on declining oil tax revenue and the need for a structural fiscal reform.Without it, federal government debt will increase and future generations of Mexicans will be the ones to pay for it.
This may just come from having an American upbringing, but I don't think Mexico's deficit spending per se is particularly worrying. Indeed, the examples the author uses to demonstrate that mortgaging of the future--$4 billion in loans from the World Bank and the IADB for Seguro Popular and Oportunidades, likely on favorable terms--amount to less than half a percentage of the nation's GDP. That's change in the couch cushions, at least compared to the trillions of US debt in Chinese hands. And Mexico's response to the 2009 recession was characterized by an overly cautious approach to incurring debt. The real problem isn't the spending on social programs, but the weak tax base. That may be the other side of the same coin, so why split hairs? Because when you start with the lack of domestic financing for pro-poor policies as the foremost fiscal problem, it follows that the fix that you are most interested in is generalizing the VAT:
In a country where even the right-leaning president has complained that the biggest companies typically fork over less than 2 percent of profits in taxes, that strikes me as the wrong approach.[W]hat is apparent is that the rejection of a tax reform for the sake of the poor today may increase the tax burden of the poor tomorrow.
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