| | |  News Around the Republic of Mexico | September 2009 
Mexico's Calderon Faces Uphill Battle on New Taxes
 Jason Lange - Reuters
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September 10, 2009
| | Poverty is rising in Mexico, where the economy is in its deepest economic downturn since the Great Depression of the 1930s, making it a difficult time to hike taxes. | |
Mexico City - Mexican opposition lawmakers said they were leery of President Felipe Calderon's fiscal reform proposal, suggesting an uphill battle lies ahead for the leader's push to raise taxes during a steep recession.
Poverty is rising in Mexico, where the economy is in its deepest economic downturn since the Great Depression of the 1930s, making it a difficult time to hike taxes.
To pass his tax plan, Calderon will need votes from the opposition Party of the Institutional Revolution, or PRI, which has yet to say whether it will support the proposal and has warned against taxes on food and medicine.
"In principle, the party's position is that in time of crisis, when people do not even have enough resources to eat, raising taxes is not the best measure," lawmaker Jorge Herrera, a member of the PRI's economic team in the lower house, told Reuters.
A plunge in oil production combined with the recession have slammed Mexico's government coffers, hurting the country's efforts to improve its shoddy schools, roads and hospitals.
The backbone of Calderon's fiscal reform proposal, released on Tuesday, is a new 2 percent sales tax on all goods and services including food and medicine, which are currently exempt.
Mexico's central bank has warned about raising taxes during hard economic times, and Finance Minister Agustin Carstens said on Wednesday the plan would temporarily boost inflation, though by less than 1 percent.
Mexico is trying to avoid a threatened debt downgrade by rating agencies which worry about its paltry tax collection and overdependence on oil.
Standard & Poor's rating agency said Calderon's tax reform bill is a positive step but that avoiding a rating downgrade will depend on the details of any law approved by Congress.
"It is a step in the right direction," Lisa Schineller, S&P's lead analyst for Mexico, told Reuters. Both S&P and Fitch Ratings said fending off a downgrade would depend on the final law approved by Congress.
Calderon is trying to sell his plan by promising to spend new revenues on welfare programs that help the poor. He is also proposing big cuts in spending on government bureaucracy.
Members of the PRI -- the biggest party in the lower house since Calderon's conservatives lost a mid-term election -- have so far expressed little but caution about the plan, though they stress they have not ruled out reaching a deal with Calderon.
"We will have to discuss (this) broadly before reaching a final decision," PRI lawmaker Cesar Santiago told Mexican television. "We and a lot of lawmakers from all the parties are worried about doing good and not causing harm or setting people back."
(Additional reporting by Miguel Angel Gutierrez and Luis Rojas Mena; Editing by James Dalgleish) |
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