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?
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs General

Recruitment Genius: Sales Manager

£35000 - £45000 per annum: Recruitment Genius: This is a unique opportunity to...

Recruitment Genius: Trainee Manager - Production

Negotiable: Recruitment Genius: Trainee Managers are required to join the UK's...

Recruitment Genius: Telesales Manager

£25000 - £35000 per annum: Recruitment Genius: You will maximise the effective...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + uncapped commission : SThree: Hello! I know most ...

Day In a Page

The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss