LatinFinance - January/February 2013 - 18

Mexico

Fiscal first

Videgaray says the fiscal reform must fulfil
three goals: it must be simple and enable
competitiveness; it must be fair; and it
must encompass all levels of the state as a
whole, including states and municipalities.
“The agreement is for this to happen in the
second semester [of this year],” he says.
The reform aims at improving the
efficiency and fairness of the tax spending
systems, to make public finances more
transparent, and to boost domestic savings

©REUTERS

The 44-year old Videgaray, who is
widely considered the president’s right
hand man and who headed the transition
team before being given the finance
portfolio, served previously as the State
of Mexico’s finance minister during Peña
Nieto’s five-year tenure as governor, from
2005.
In that role, he was highly regarded
for his management of public finances:
he was instrumental in helping the
state win an investment grade rating,

Peña Nieto and Videgaray: now comes the hard part
having slashed public debt by 20% and
having boosted state revenues through
a successful fiscal reform – although,
he stresses, revenues were doubled
without tax increases. “This was all about
revenue efficiency,” Videgaray says. “It’s
just as important as having a good fiscal
reform to have true efficiency in revenue
collection.”
Boosting tax revenues and increasing
competition in the energy sector are two
key priorities of the new administration.
Mexico has the smallest non-oil tax take
of any OECD country: at 11% of GDP,
it is on par with Pakistan and compares
unfavorably to Brazil, at 34%, or even
the Latin American average of 18.5%. Oil
revenues, which account for a third of the
budget, are in decline.

18 LatinFinance

CoverStoryMexico.indd 18

and investment, and – so it’s hoped –
Mexico’s growth potential.
“Clearly this is not just a marginal
twist in the fiscal regime. We need to do
a true overhaul of our fiscal structure in
order for this to be possible,” he says. The
government has said it will review all taxes
as part of a comprehensive reform, though
Videgaray has said no new taxes will be
introduced this year.
The Pact also includes a sweeping
proposal for broadening social security.
“It’s based on the belief that we need to
create a more equal society,” he says.
Indeed, part of the rationale for the
fiscal reform is to raise funds to pay for the
new programs under the Pact, including
universal healthcare. “We need to give
budgetary support for this to happen and

that’s where the fiscal reform comes into
play. We need to create a basic safety net
to make sure that all Mexicans have a
minimum base of benefits.”
The vision is bold. As Luis de la Calle,
managing director at consultancy De La
Calle, Madrazo, Mancera, and a former
undersecretary for international trade,
puts it: “They’ve essentially said, ‘let’s
build a welfare state with our budget.’”
But, he adds, “the question is: how will
they pay for it and how much will it cost?”
Videgaray says it’s too soon to talk
numbers. The government is “not
releasing any figures because it will all
depend on many components that are yet
to be defined,” he says.
Some anecdotal estimates put the cost
of such reforms – creating a social safety
net – at between 3-5% of GDP. The Center
for Economic and Budgetary Research
(CIEP), a think tank, puts that figure at
closer to 6% of GDP.
Vito Tanzi, a former head of the IMF’s
fiscal affairs department, says there is no
relevant historical precedent for what
Mexico is setting out to achieve; only
the US and Sweden have set up welfare
systems from scratch, one in the midst
of the Great Depression, the other in the
context of a highly homogenous society.
“Mexico is a very long way from where
they need to be if they want to have a
welfare state, even one like the US. They
will have to have a major tax reform,”
Tanzi says.

Too much to handle?

Tax reform is the key to getting the
broader set of proposals in the Pact
done. The finance ministry has estimated
that revenue losses from special tax
preferences, exemptions and deductions
averaged more than 5% of GDP annually
in the 2003 – 2010 period.
While there is consensus that a tax
reform could prove a significant boost to
Mexico’s economy, experts worry both
about the aim of using the proceeds to
fund a broadening of social security and
the chances of success of the fiscal reform
itself.
Peña Nieto’s administration has, in
effect, wagered its political future on
getting its broader set of reforms done.
Videgaray himself points out that 44 of the

January/February 2013

1/10/13 11:10 AM



LatinFinance - January/February 2013

Table of Contents for the Digital Edition of LatinFinance - January/February 2013

Latin Finance - January/February 2013
Contents
Remaking of a nation
Moving the market
Full court press
Andean push
Cleaning up
Best in class
Building up
Filling the void
‘Seize the opportunity’
LatinFinance - January/February 2013 - Latin Finance - January/February 2013
LatinFinance - January/February 2013 - Cover2
LatinFinance - January/February 2013 - 1
LatinFinance - January/February 2013 - Contents
LatinFinance - January/February 2013 - 3
LatinFinance - January/February 2013 - 4
LatinFinance - January/February 2013 - 5
LatinFinance - January/February 2013 - 6
LatinFinance - January/February 2013 - 7
LatinFinance - January/February 2013 - 8
LatinFinance - January/February 2013 - 9
LatinFinance - January/February 2013 - 10
LatinFinance - January/February 2013 - 11
LatinFinance - January/February 2013 - 12
LatinFinance - January/February 2013 - 13
LatinFinance - January/February 2013 - 14
LatinFinance - January/February 2013 - 15
LatinFinance - January/February 2013 - Remaking of a nation
LatinFinance - January/February 2013 - 17
LatinFinance - January/February 2013 - 18
LatinFinance - January/February 2013 - 19
LatinFinance - January/February 2013 - 20
LatinFinance - January/February 2013 - 21
LatinFinance - January/February 2013 - 22
LatinFinance - January/February 2013 - 23
LatinFinance - January/February 2013 - Moving the market
LatinFinance - January/February 2013 - 25
LatinFinance - January/February 2013 - Full court press
LatinFinance - January/February 2013 - 27
LatinFinance - January/February 2013 - 28
LatinFinance - January/February 2013 - Andean push
LatinFinance - January/February 2013 - 30
LatinFinance - January/February 2013 - 31
LatinFinance - January/February 2013 - Cleaning up
LatinFinance - January/February 2013 - 33
LatinFinance - January/February 2013 - 34
LatinFinance - January/February 2013 - 35
LatinFinance - January/February 2013 - Best in class
LatinFinance - January/February 2013 - 37
LatinFinance - January/February 2013 - 38
LatinFinance - January/February 2013 - 39
LatinFinance - January/February 2013 - 40
LatinFinance - January/February 2013 - 41
LatinFinance - January/February 2013 - 42
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LatinFinance - January/February 2013 - 60
LatinFinance - January/February 2013 - 61
LatinFinance - January/February 2013 - 62
LatinFinance - January/February 2013 - 63
LatinFinance - January/February 2013 - Building up
LatinFinance - January/February 2013 - 65
LatinFinance - January/February 2013 - 66
LatinFinance - January/February 2013 - 67
LatinFinance - January/February 2013 - Filling the void
LatinFinance - January/February 2013 - 69
LatinFinance - January/February 2013 - 70
LatinFinance - January/February 2013 - 71
LatinFinance - January/February 2013 - ‘Seize the opportunity’
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