| | |  News Around the Republic of Mexico | October 2009 
Mexico Govt Says Tax Package in Senate Meets Needs
 Reuters
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October 23, 2009
 |  | It truly satisfies the needs of government next year.
- Agustin Carstens |  | | |
Mexico City - A watered-down version of a government proposal to raise taxes, approved by lawmakers this week, will be enough to shore up public finances next year, Finance Minister Agustin Carstens said on Thursday.
Mexico's lower house of Congress passed a version of President Felipe Calderon's tax plan on Wednesday in an effort to reduce dependence on waning oil output in the 2010 budget.
"It truly satisfies the needs of government next year," Carstens told reporters at the Senate, which is expected to approve the bill with at most minor changes by the end of the month.
After shooting down Calderon's plan to make food and medicine subject to tax, lawmakers accepted a government suggestion to raise the value-added tax, or VAT, to 16 percent from 15 percent.
"The deal that we have at the moment is the best deal possible and we are going to have to work with it," Carstens said.
Levies on beer, telecommunications and high salaries were also raised. The government proposed a federal government deficit equivalent to 0.5 percent of gross domestic product, though the opposition-dominated Congress raised that to 0.75 percent of GDP.
Carstens said the extra borrowing should not make investors nervous.
"This deficit in not a risk to financial stability," he said at a separate news conference.
For decades, revenue from Mexico's state-run oil industry allowed the government to be soft on tax collection. Oil funds more than a third of the budget. Relative to the size of its economy, Mexico's tax take is roughly on par with Haiti's.
However, a drop in oil output of nearly a quarter since 2004 has put public coffers under pressure.
"Considering the circumstances that the country is in, it was a really good decision" to approve the tax package, Carstens told reporters at the Senate.
It was unclear whether the measures will be enough to stave off threatened debt downgrades by ratings agencies.
(Reporting by Jason Lange, Miguel Angel Gutierrez and Michael O'Boyle; Editing by Leslie Adler)
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