The fear of an unbalance in public finances with PRI’s return to government has proven to be true. Giving up the zero deficit or, plainly speaking, the support for indebtedness – which has been proposed in the 2014 Economic Package to a 1.5% of the GDP -, is the main point of President Peña’s tax initiative. Its promise of keeping balance within the 2013 Economic Package, announced at the beginning of his tenure, proved to be “a flash in the pan” (even though he never stated that it would continue until 2014, maintaining a modus operandi that’s been foreseeable in this government: “not today, tomorrow never knows”). Certainly, the federal government took into account that the debt/GDP ratio in Mexico (34%) is considerably under the “best” international practices, thereby, “opening the key” for debt does not imply a serious problem of macroeconomic instability in the short term. Even though that the initiative will be temporary and decreasing, there is a worry if there are truly a specific strategy to go back to a budgetary exercise that has been balanced in the mid and long terms. The latter is because, as illustrated by the European and American social security systems, the cost of a package like the one proposed by the government tends to grow a lot faster than anticipated.
The Law of Budgetary and Tax Responsibilities (article 17) says that all expenditure budget should focus on balance – that is to say, “zero deficit” – to not incur in internal or external indebtedness. If the Executive Power or the Congress should foresee a public deficit in the annual economic program, should be bounded to two rules: one, justifying the “exceptional” reasons that motivates budgetary red numbers and specifies its size; two, designing a plan with concrete actions and specified times with the purpose of eliminating this deficit and reestablishing the balance in public finances. The main reasons – maybe not as “exceptional” – which shall motivate the red numbers will be the sustainability of the ambitious programs of social security support of the current government, many of those, of direct transfers of resources, and with a massive expansion of infrastructure projects (415 billion dollars), according to the National Infrastructure Plan (PNI), in contrast with the historical 240 billion dollars of the previous administration’s PNI).
On the other hand, the future plan for reestablishing the tax balance will be supporting investments and taxing within oil revenues. In other words, the federal government will place its odds in the energy sector and not only because of the approval of the corresponding reform but also due to the secondary legislation issued by it. For example, in the tax reform it is already included the calculation of shared utility contracts, which do not explicitly exist (yet) in the Constitutional reform. In case of approving the energy sector’s opening, it will not be enough to ensure investments. It will be indispensable to complement this with commercial incentives, such as the strategy to convince potential investors of why they should place their money in Mexico and not betting on the natural resources of other countries. The tax and transparency incentives included in processes and contracts will be essential.
Curiously enough, the federal government will be to back up an initiative demanded by the left, which is to increase in public expenditure despite the deficit, with a right-wing policy, giving up the energy sector as a strategic area, monopolized by the State. The question if the indebtedness factor will be compensated by opening up the energy sector, particularly because there is no openness nor flow of investment, in addition of those previsions about these eventualities that are, as a consequence, quite uncertain. That way, Mexico is betting once again for spending money that “doesn’t exist” and who knows if will ever be paid.
CIDAC
Comments