Some tough negotiations are expected ahead of next month’s Budget in Mexico with President Felipe Calderon wanting to cut the country’s deficit in 2011 as part of a larger plan to boost the recovery from recession.
Calderon is due to submit his budget plan to congress by September 8 and it is expected to call for a deficit equivalent to 2.8% of gross domestic product.
‘We think that we should continue that tendency and send a budget that cuts the deficit level to something lower than last year,’ said finance minister Ernesto Cordero.
Earlier this year, Cordero said the government was planning a fiscal reform bill, but he has since backtracked, saying the government proposal must take into account the political climate.
‘Everything is on the table. It is important that we send a proposal that can win a majority in Congress,’ added Cordero.
Cordero though has warned that as Mexico is limping back from one of the steepest economic contractions seen anywhere in the world last year, it is crucial to maintain fiscal discipline so that investors remain confident in its ability to pay its debts.
‘Our budget will put a priority on stable finances. It would be irresponsible, at this moment, to put at risk the strong finances that Mexico has established,’ he said, adding that the government expects the Mexican economy to grow between 4% and 5% this year.
Mexico’s main opposition party, the Institutional Revolutionary Party (PRI), has vowed to oppose extending the country’s value added tax to food and medicine. The government raised the value added tax by 1% this year to boost public revenue that had been undercut by declining oil production and a fall in income tax revenue during last year’s recession. Output at state owned Petroleos Mexicanos, Latin America’s largest oil producer, fell 7% in 2009.
It also wants an end to loopholes that allow businesses to claim tax exemptions that lawmakers say are equivalent to 4% of gross domestic product.
The party will block budget legislation if other parties oppose the measure, said congressman Sebastian Lerdo. The government would have taken in 465 billion pesos ($36.4 billion) more in tax revenue in 2009 had the exemptions not existed and will miss out on 580 billion pesos in revenue this year and 589 billion pesos next year, which is equal to more than 4% percent of GDP, according to a report by Lerdo.
The PRI proposed a bill to eliminate tax loopholes in February. While it was approved by the lower house budget committee, it still needs to be approved by the finance committee in order to go to a full floor vote.
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