Inclusive growth without investment?
The sectors historically affected by spending cuts, especially in macroeconomic crises, are the most vulnerable. And items such as education or public investment have been the most prone to a budget adjustment, said John Scott, advisor and academic researcher at the National Council for the Evaluation of Social Development Policy (Coneval).
Infrastructure spending has historically been “easy to cut and has been cut in the past, because you do not have direct beneficiaries with whom you have to negotiate or confront,” notes the economist. But he warns that those affected are the citizens of future generations, who are not well represented “even in a democracy.”
The weakening of investment may compromise the “inclusive growth” needed to combat poverty and inequality in the country. Therefore, public investment, which is projected to be scarce, “must be based on evidence.”
With no tax reform in sight, what can be done?
The virtual president-elect, Claudia Sheinbaum, has already indicated that she will not propose, for the moment, a tax reform and that the digitalization of the government and the SAT, as well as customs revenues, will be enough to keep public finances afloat.
The federal government’s latest efforts have yielded relatively successful results, according to John Scott. Well, although the increase in tax revenues is a reality (around 5 percentage points in the last 10 years), this increase “has basically gone to compensate for the drop in oil revenues.”
In this scenario, John Scott proposes an alternative to increase tax collection, through the selective elimination of tax waivers.
These refer to all those exemptions, reductions and tax reliefs that deviate from the “normal” structure of any tax, constituting a favorable tax regime for certain types of income or sectors of the economy.
This “gap” represents around 4 percentage points of GDP in tax collection that the State renounces, estimates the also former director of the CIDE Economics Division. The strategy of at least eliminating regressive tax breaks would not be that complicated, since it does not involve raising any tax rates. And it can be done by decree, said the expert.
This Thursday, the Independent Commission for Equality with Tax Justice, of which Scott is a member, in fact, stated during its presentation that many of these tax exemptions in Mexico should not exist. Well, although some of them have been born from legitimate social demands, they have ended up benefiting only high-income sectors.
Focus spending and transfers
Members of the Independent Commission for Fiscal Equality, headed by economists such as Gerardo Esquivel and Nora Lustig, emphasized the need to focus spending on vulnerable groups. Since currently, the poorest end up “losing to the treasury” by paying more taxes than they receive as transfers.
Coneval estimates that in Mexico there are 9.1 million people living in extreme poverty. And meeting their needs will be difficult with 80% of total net spending committed to paying unavoidable obligations: pensions, federalized spending, cost of debt. To this will be added energy efficiency and climate change objectives.
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