Economics: Yet another inertial budget to nowhere

MEXICO - Report 16 Nov 2020 by Mauricio González and Francisco González

The erosion of public finance accelerated over the course of the third quarter, with numbers especially alarming as of September, the most recent month for which we have results. Even as the tax authority stepped up efforts to energetically impose "administrative" measures — formally legal, but in most instances applied in a coercive manner — on major businesses to settle supposed tax debts from as far back as 2015, budgetary revenues fell a real annual 8.5% in the most recent quarter as a 3.4% rise in the non petroleum component was engulfed by a 45.7% plunge in petroleum income. The government responded by trying to contain the expansion of public spending seen during the first six months, but the resulting cuts have failed to avert a fiscal deficit rebound and a new surge in public debt.

With the pandemic and debilitated state of economic activity greatly reducing tax revenues, the government of President López Obrador continues to draw from the same policy pallet it has deployed since day one. Even as it depletes every available reserve fund no matter the contingency it was established for, it ignores the need for sustainable revenue sources that can only come from a fiscal reform.

We can expect more of the same after the administration’s congressional leaders managed to pass the Finance Ministry’s 2021 budget proposals, hardly taking notice of the more than 1,000 reservations expressed by other members of Congress. One exception was the proposal to empower fiscal authorities to record images and electronic files to document goods and other assets present at any tax address, which the Morena leadership withdrew after it proved highly unpopular.

Each and every line of the finance ministry’s quantitative revenue and expenditure projections passed without even the slightest adjustment. It is clear that the government remains wed to its strategy of offsetting each and every revenue shortfall amid the current economic recession with administrative cuts, while leaving its priority projects and social programs intact.

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