Mexico’s President, Enrique Peña Nieto unveiled his Fiscal Reform Proposal on September eighth. As well as surprising everyone he was subject to criticism from even within his party, the PRI. Few have rallied to defend it and for good reason; it is minimalist.
The reform is mainly criticized for failing to increase government tax revenue, ignoring the problem of informality (only 40% of the economically active population pays taxes) and for not increasing the taxes on the wealthiest significantly (the highest tax bracket would only pay 32% in their income tax). A few weeks ago, the Mexican Employers Association reiterated their disapproval of the proposal. This comes at a precarious moment for Peña Nieto, as his popularity rate is at its lowest point after just 9 months in office. This proposal gives a mediocre image of the government: a regression from the reformist image they had been trying to display.
It was only in 2000 that a democratic Mexico experienced its first presidential transition, ending 71 years of authoritarian rule under the Institutional Revolutionary Party (PRI). Through most of those years the presidents had strong control over congress and largely dictated what sorts of reforms were passed through the legislature. Pena Nieto’s ancestors of the National Action Party (PAN) (Fox from 2000-2006 and Calderon from 2006-2012) struggled to pass any reforms because of a divided congress. Calderon was widely criticized for pushing incomplete reforms, which were deemed as half measures.
The Pact for Mexico presented itself as the solution for both the political gridlock and incomplete reforms. Last December, Peña Nieto succeeded in joining all major political parties under this historic accord. The objective of this pact was to tackle all the challenges of modern Mexico through structural reforms with unified support from all of the major parties. The pact displays remarkable political maturity by the opposing parties (PAN & PRD), because, if united, they could block all reform.
This ambitious project empowered government as a whole and allowed for significant action. The first step was shaping a reform for the deficient education sector- extending school hours and improving the selection of educators. Peña Nieto continued by imprisoning the powerful and corrupt leader of the teachers’ union. Additionally they challenged monopolies in the telecommunications sector and opened it up in hopes of creating a more competitive market. Such actions defied powerful individuals, such as Carlos Slim, the second richest man in the world, and Emilio Azcarraga, owner of the largest Spanish media corporation in the world, both of whom have been reaping the benefits of monopolized telecommunications for many years. The media was very optimistic with this unseen cooperation in Mexican politics.
The pact ended its first dispute almost untouched. However, as time passed the opposition started to fracture. Early on, the left (PRD & other minor parties) were divided by opinions on the pact. The left was followed by the conservative PAN who has gone into a crisis as several prominent members have started clashing over the role the party plays in the pact. Furthermore, teachers’ unions started an ongoing protest attempting to stop the Education Reform. The Peña Nieto Administration stood strong but was unsuccessful, as teachers managed to weaken the reform. The protests, combined with a poor performance of the Mexican Economy, have taken Peña Nieto’s popularity to its lowest level.
“This reform is nothing like what we expected,” stated the President of the Coordinator Business Council, and they are correct. The Fiscal Reform Proposal avoided touching on hot issues, such as the expansion of sales tax onto medicines and food, which had been widely anticipated. Even though Mexico’s weak tax revenue was not addressed, the Fiscal Reform pushes for more spending. As Peña Nieto had promised, the reform would introduce unemployment insurance and a universal pension. Furthermore, it included some emergency spending that will increase the deficit to its highest level in the last 24 years. The biggest weakness of this Fiscal Reform is that Mexico will need a new one soon.
Peña Nieto needs to remember that minimalistic reforms give minimalistic results. He must recall the advice that Former British Prime Minister Tony Blair gave him a year ago: “It’s surprising to see how time passes by rapidly and the problem lay in the daily events, if you’re not careful enough, they can displace the priority agenda you had established.” In addition, he needs to realize that reform will always face resistance regardless of how minimalistic or revolutionary it is. Hopefully, the criticism he is receiving for this proposal will shed light on the weaknesses within his reform.
No more half measures, Peña Nieto.
WRITTEN BY GERHARD FAVELA PEREZ
