Mexico lines up tax reform with leftist lean: President Enrique Peña Nieto raises income tax but not VAT in latest shake-up

Plan aims to broaden the abysmally low tax base and root out corruption in public spending

Mexico president Enrique Peña Nieto has unveiled a major shake-up of the country’s creaking tax system aimed at broadening the abysmally low tax base and rooting out widespread corruption in public spending.

The plan would raise the top tax band from 30 per cent to 32 per cent for those earning more than 500,000 pesos (£24,000) a year, and see a new levy on stock market profits as well as the scrapping of more than half the exemptions and breaks in Mexico’s fiscal code.

It has also defied widespread predictions by avoiding slapping VAT on food and medicines, which would have been one of the easiest ways to raise revenues.

That is partly because, despite being the world’s 14th economy – and home to the world’s richest man, telecoms tycoon Carlos Slim – roughly half of the 110 million population remain mired in poverty and would be seriously hurt by such a move.

But it may also be because Mr Peña Nieto’s Institutional Revolutionary Party, or PRI by its Spanish initials, lacks a congressional majority and will be relying on the left-wing Party of the Democratic Revolution, or PRD, to pass the reform.

That strategy appears to be working. Jesus Zambrano, the PRD leader described the proposal as a “triumph for the positions … championed by the PRD”, in particular the decision regarding VAT.

Measures intended to clean up Mexico’s public sector include centralising teachers’ pay and the healthcare systems’ purchasing of medicines by placing both directly in the hands of the federal government for the first time.

Mr Peña Nieto hopes the overhaul will increase state spending by £22bn per year, or three per cent of GDP, by 2018, and thus kick-start growth to around six per cent, after years of Mexico lagging behind many of its Latin American competitors.

Mexico’s current tax base, of 17.5 per cent of GDP, is the lowest in the Organisation for Economic Co-operaton and Development (OECD), a club of 34 of the world’s largest economies. Experts estimate that the black market makes up roughly half the national economy.

Yet although there is widespread agreement that a fiscal shake-up was urgently needed, there remains huge controversy over the recipe. Members of the third of Mexico’s three major political groupings, the conservative National Action Party, or PAN, were highly critical of the PRI plan, categorising it as an attack on the middle class.

One of the more pointed complaints was that the reform punishes those Mexicans who do pay income tax rather than going after the millions who deal only in cash and rarely or never pay income tax.

PAN leader Gustavo Madero also complained that the shake-up would trigger a fiscal deficit of 1.5 per cent of GDP for 2014. “In the PRI’s hands, debt has never worked out well. Deficit is a euphemism for debt,” he said. “Half this reform is financed with a deficit.”

Despite being forged in the 1910-1920 Mexican Revolution, the PRI swapped its leftist rhetoric for the free market during the 1980s and 1990s, including signing the North American Free Trade Agreement, or NAFTA, in 1992.

Yet Mr Peña Nieto, who was elected president in 2012, ending 12 years in the wilderness for the PRI, appears to be tacking, at least partially, leftwards again. One of the biggest challenges has been in redefining the PRI, which previously governed Mexico uninterrupted for seven decades, a period during which a handful of families came to dominate the economy.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Business Development Executive / Digital Marketing Executive

£26000 - £35000 per annum: Recruitment Genius: A luxury beauty house with a nu...

Recruitment Genius: Housekeepers - Immediate Start

£8 per hour: Recruitment Genius: This company are currently recruiting new exp...

Recruitment Genius: Head Concierge

£25000 - £28000 per annum: Recruitment Genius: This award winning Property Man...

Recruitment Genius: Content, SEO and PPC Executive

£20000 - £25000 per annum: Recruitment Genius: A fantastic opportunity has ari...

Day In a Page

On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific
In this the person to restore our trust in the banks?

In this the person to restore our trust in the banks?

Dame Colette Bowe - interview
When do the creative juices dry up?

When do the creative juices dry up?

David Lodge thinks he knows
The 'Cher moment' happening across fashion just now

Fashion's Cher moment

Ageing beauty will always be more classy than all that booty
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination

Health fears over school cancer jab

Shock new Freedom of Information figures show how thousands of girls have suffered serious symptoms after routine HPV injection
Fifa President Sepp Blatter warns his opponents: 'I forgive everyone, but I don't forget'

'I forgive everyone, but I don't forget'

Fifa president Sepp Blatter issues defiant warning to opponents
Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report

Weather warning

Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report
LSD: Speaking to volunteer users of the drug as trials get underway to see if it cures depression and addiction

High hopes for LSD

Meet the volunteer users helping to see if it cures depression and addiction
German soldier who died fighting for UK in Battle of Waterloo should be removed from museum display and given dignified funeral, say historians

Saving Private Brandt

A Belgian museum's display of the skeleton of a soldier killed at Waterloo prompts calls for him to be given a dignified funeral