President Felipe Calderon's 2007 Budget Proposal Comes under Fire

SourceMex Economic News & Analysis on Mexico, December 13, 2006 | Go to article overview

President Felipe Calderon's 2007 Budget Proposal Comes under Fire


President Felipe Calderon has announced plans to boost social expenditures to help alleviate poverty, but opposition members contend that the increases are more than offset by net reductions in some important educational and social programs. Calderon sent his 2007 budget proposal of 2.17 trillion pesos (US$200 billion) to Congress on Dec. 5. The president's proposal increases spending by almost 10% from the final budget approved for 2006 (see SourceMex, 2006-01-04).

Calderon acknowledged that his budget proposal was austere, even with the slight increase from last year, but he was faced with an anticipated reduction in oil-export revenues and the lack of proposals to boost taxes significantly in 2007. This meant that any increased spending in some areas had to be offset by reductions in other areas.

As part of his commitment to maintain a balanced budget, Calderon offered to cut executive-branch spending by 10%, including a reduction in his salary and those of his Cabinet secretaries and other high-level officials. The president also directed department heads to reduce expenditures for gasoline and electricity, travel, cell-phone calls, and other nonessential expenses. The austerity measures could provide the government with an additional 25 billion pesos (US$2.3 billion) to devote to social programs.

"For decades authorities have asked the people to tighten their belts and the people have done that," Calderon said. "Today the government must make the effort first."

In announcing the austerity measures, the president offered to make all expenditures public. "We will give accounts of every peso that citizens have given to the government," Calderon said. "Transparency and accountability are the responsibility of every democratic government."

Legislators from the opposition Partido Revolucionario Institucional (PRI) and the Partido de la Revolucion Democratica (PRD) criticized Calderon's proposal as insufficient. Deputy Manlio Fabio Beltrones, who heads the PRI delegation in the lower house, recommended to Calderon that he take further steps, such as eliminating some unnecessary departments in various government ministries. The PRD noted that its presidential candidate Andres Manuel Lopez Obrador, who lost the election to Calderon by fewer than 250,000 votes, had promised to slash the presidential salary in half, not just by the 10% proposed by the president.

Lopez Obrador, who created a "parallel" government after electoral authorities declared Calderon the winner (see SourceMex, 2006-09-20), has drafted his own budget plan, which proposes major increases in social programs. This proposal, which places expenditures at 2.26 trillion pesos (US$208 billion), would be presented by legislators from the PRD and other center-left parties who would bring it to the floor of the lower house during debate on Calderon's budget.

Revenues could be a problem in 2007

A major problem for Calderon is the potential lack of new revenues to meet a commitment to boost expenditures on social programs, particularly in light of the president's commitment to a balanced budget. The budget proposal contains no major increases in taxes. And even the taxes that have been proposed, such as one on tobacco and another on soft drinks, will be opposed by the industries and opposition legislators.

The Asociacion Nacional de Productores de Refrescos y Aguas Carbonatadas (ANPRAC) took a full-page advertisement in several Mexico City daily newspapers warning that the special tax (Impuesto Especial sobre Produccion y Servicios, IEPS) proposed by Calderon could reduce demand for soft drinks and carbonated water by 638 million liters annually. This tax, which comes on top of a 15% value-added tax (impuesto al valor agregado, IVA), could cost Mexico 36,500 jobs, including those of sugar-cane harvesters and mom-and-pop vendors, said industry sources.

"Taxes on beer, cigarettes, and soft drinks are the easiest to collect," Alfredo Paredes, chief executive of Big Cola soft drink manufacturer Ajegroup, told the Los Angeles Times. …

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