| | |  News Around the Republic of Mexico | October 2009 
Mexico’s Opposition PRI Favors Modifying Calderon Tax Proposal
 Adriana Lopez Caraveo & Jens Erik Gould - Bloomberg
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October 21, 2009
 |  | Calderon is seeking to increase consumption and income taxes and reduce spending to strengthen public finances and avert a credit-rating downgrade. |  | | |
Mexican lawmakers from the largest party in the lower house of Congress called for modifying potential new taxes in President Felipe Calderon’s 2010 budget proposal to better protect the poor during a recession.
The Institutional Revolutionary Party wants to do away with the government’s plan for an additional 2 percent consumption tax that would apply to food and medicine, said Francisco Rojas, who is the head of the party in the lower house. The PRI favors raising the current sales tax from 15 percent to 16 percent, he said.
“We can’t raise any tax that affects food and medicine,” Rojas told reporters at the lower house. “We can’t put the country at risk by acting irresponsibly.”
The PRI also favors cutting Calderon’s proposal to apply a 4 percent tax to telecommunications services to 3 percent and to halve a proposed beer tax, Rojas said. Reducing the taxes could widen the deficit to around 0.8 percent of gross domestic product from the government’s proposal of 0.5 percent, he said.
Calderon is seeking to increase consumption and income taxes and reduce spending to strengthen public finances and avert a credit-rating downgrade. Standard & Poor’s and Fitch Ratings say they’ll cut Mexico’s BBB+ rating, which is three levels above junk, should Calderon fail to rein in a budget gap that’s widening as the country’s oil output falls.
The president needs the PRI’s support to pass the proposals. Deputies are scheduled to vote on the income portion of the budget by today and the spending segment next month.
2 Percent Tax
The Finance Ministry said yesterday that the PRI wouldn’t accept the proposal for the 2 percent tax, the most controversial part of the government’s plan. The duty is known as the anti-poverty tax because its proceeds would go to social programs.
The PRI also favors raising the estimated oil price for the 2010 budget to $59 per barrel from $53.90 per barrel, Rojas said. The party agrees with Calderon’s proposal to temporarily increase income taxes to 30 percent from 28 percent, he said.
The PRI’s proposals for new taxes would collect an additional 116 billion pesos next year, Rojas said.
Mexico’s $1.09 trillion economy, the region’s second biggest, contracted 10.3 percent in the second quarter and job losses accelerated as the recession in the U.S., which buys about 80 percent of the country’s exports, sapped demand for its products. The economy will shrink as much as 7.5 percent this year, according to the central bank.
Tumbling Revenue
Government revenue tumbled as the recession reduced remittances and tax collection, while output of oil, which funds about 38 percent of the budget, slumped. Production at Mexico’s state-controlled oil company, Petroleos Mexicanos, declined 7.9 percent in August from a year earlier to 2.54 million barrels a day.
Total non-oil revenue, including sales and income tax, fell 13 percent in the first eight months of the year compared with the same period last year, according to the Finance Ministry.
Parties that oppose the 2010 budget and the plan for new taxes will organize a demonstration to protest the legislation next week, said Pedro Vazquez, head of the Workers Party in the lower house.
To contact the reporter on this story: Jens Erik Gould in Mexico City at jgould9(at)bloomberg.net; Adriana Lopez Caraveo in Mexico City at adrianalopez(at)bloomberg.net
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