Agustín Carstens, Mexico’s finance minister under president Felipe Calderon’s government that took office in December 2006, deserves praise, however, for tackling the next great challenge: fiscal reform. This has eluded past administrations and attempts by former president Vicente Fox’s government to raise revenue by overhauling value-added tax failed.
By contrast, in September the Calderon administration pushed through a tax reform that should increase government income by two percentage points of GDP over the next six years.
It may not sound much, but with Mexico’s tax take standing at a mere 11% of GDP – one of the lowest in Latin America – and with all kinds of opposition to overcome, it was a considerable feat and one in which Mr Carstens played a significant and influential role.
Mr Carstens told The Banker in August: “By any standards we have very low tax revenues. We live from oil revenue [it accounts for 40% of government revenues] and in the short to medium term, considering the health of our public finances, we are not vulnerable. But we have price risk with oil and uncertainty over the continuation of the production platform [Mexico’s oil sector needs substantial investment].”
Mr Carstens recognises that fiscal reform is going to be an ongoing challenge for Mexican governments for the next couple of decades. “I would not dare say that this reform will do the trick for all administrations... it will give us a good push forward but the issue of the fiscal situation is something future governments will need to study on a yearly basis and take appropriate measures.
“We will do our work in this administration but the fiscal discussion will be in the minds of the Mexican governments for the next 20 years.”
