President Vicente Fox's Administration, Governors & Political Parties Launch Tax-Reform Convention

SourceMex Economic News & Analysis on Mexico, February 11, 2004 | Go to article overview

President Vicente Fox's Administration, Governors & Political Parties Launch Tax-Reform Convention


The initial phase of the tax-reform convention--promoted so heavily by President Vicente Fox, the governors association (Confederacion Nacional de Gobernadores, CONAGO), and the various political parties--started with a whimper rather than a bang.

The entire process of reforming the tax system has been dubbed the Convencion Nacional Hacendaria (CNH). This is only the fourth time in its history, and the first time since 1947, that Mexico has attempted to overhaul its taxation system. Mexico also sought major changes to its fiscal system in 1927 and 1933.

Participants gathered in Queretaro City in central Mexico on Feb. 5-7 to lay the groundwork for discussions on reforms to the tax system. These discussions are scheduled to continue during the next six months, resulting in formal proposals that will be presented to the Mexican Congress in July.

To facilitate discussions, participants formed seven working groups to discuss everything from spending, income, and public debt to modernization, intergovernmental coordination, and transparency, among other topics.

"Certainly, we require a legitimate consensus because we are not talking about a simple discussion about certain taxes," said Armando Lara, a columnist for the Mexico City daily newspaper La Jornada. "This is a process where the fiscal structures of the federal, state, and municipal governments are redefined and where the political and economic structures of public spending begin to take a new shape."

Fox urged to abandon plan to expand value-added tax

More than anything, skeptics say, the various participants in the CNH will have to overcome the fundamental difficulties that have driven a wedge between President Vicente Fox's governing center-right Partido Accion Nacional (PAN) and the opposition parties. The PAN, which sees no alternative to expanding the government tax base, continues to support a wider application of the value-added tax (impuesto al valor agregado, IVA). The Fox government has gained support for an expanded IVA among a small faction of the former governing Partido Revolucionario Institucional (PRI), in particular a handful of governors (see SourceMex, 2003-12-17).

The vast majority of PRI members in Congress and the party's leadership have joined the center-left Partido de la Revolucion Democratica (PRD) and other minor parties in opposing Fox's IVA proposal. In the days leading to the start of the convention, legislators from the PRI and PRD reached an agreement to block any efforts by Fox to use the convention to resurrect the IVA proposal, which the Congress voted down in early December (See SourceMex, 2003-12-03)

Still, participants in the three-day session to launch the CNH attempted to put a positive spin on the discussions in the convention. "We come together in a single place, motivated to enter into dialogue, exchange opinions, and put forth proposals at the three levels of government..." said Fox. "Surely, this process will bring solutions."

PRD leader Leonel Godoy praised Fox for launching the convention with a conciliatory and positive tone. "The president's tone helps toward the goal we all are seeking, that our work is successful," said Godoy.

The PRD leader also took the opportunity to warn the president that the party will not accept any solution that is heavily weighted toward a tax increase. "We are in favor of improving the tax-collection system, not of raising taxes."

The PRI leadership committee (comite ejecutivo nacional, CEN) took a harsher tone with the president, criticizing Fox for a "bureaucratic" stance in launching the CNH and for using the opening speech to promote his party's policies. "The president does not understand that structural reforms cannot take root from the political agenda of only one of the parties involved in the dialogue," said Deputy Jose Alberto Auguilar Inarritu, a member of the PRI's CEN. …

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