Tax Reform in Mexico: transparency versus viability?

Reuters published an interesting interview with Luis Videgaray, Mexico’s Finance Minister.  Videgaray is credited to a large extent in helping Pena Nieto become President.

One big problem in Mexico is the fact that the government (from independence on) has been unable to collect taxes very effectively. The country only collects about 6-8% of its national income in taxes, a rate quite a bit lower than any other OECD country.

The new administration has promised a fiscal overhaul, including finding a way to reduce the informal part of the economy, get states to raise more taxes, and close loopholes. So far so good.

The interesting part of this story is the way in which officials have chosen reform viability over government transparency.

For instance, LV states: “We’ve made a decision not to talk about fiscal reform yet, not even to the ratings agencies. It’s important to have a good technical design but also to be quite sensitive to the political needs of the fiscal reform. The first to know about the design of the fiscal reform … should be Congress.” “We have some very good progress on what we are planning to do on fiscal reform .. (but) we are not talking about it yet.” “It will be large.”

This reminds me of privatization in Mexico, when President Miguel de la Madrid forbade any administration official from using the dreaded word privatization. Instead, they were to call it “redimensionamiento (re-determining of the size of the public enterprise sector) & disincorporación (liquidation, transfer, merger, or selling of state enterprises).” That tidbit is from Judith Teichman’s excellent book Privatization & Political Change in Mexico (University of Pittsburgh Press, 1996). Highly recommended.

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