According to The Financial Times, the governors of four prosperous Mexican states have called on President Andrés Manuel López Obrador to revise a four-decade-old tax pact in a rebuke to his leadership just as coronavirus threatens a crisis in Latin America’s second-biggest economy.
“We’ve had enough of abuses,” said Enrique Alfaro, governor of the western state of Jalisco, days after Mexico’s powerful CCE business lobby slammed the president for ignoring proposals to mitigate the Covid-19 impact on jobs, saying he alone would be responsible if tragedy struck.
“Either [the fiscal pact] is revised and let’s hope we can do that or . . . those states among us that contribute more to the economy will have to make a decision,” Mr Alfaro said on Friday. “We’re trying not to break it . . . Let’s hope it doesn’t come to that.” Edna Jaime, head of the México Evalúa think-tank, said Mr Alfaro and the governors of the states of Nuevo Léon, Tamaulipas and Colima had “seized the opportunity to challenge the president” after his coronavirus plan, announced a week ago, was widely criticized.
He is boosting social programs and offering 1m loans to small businesses but refuses to defer taxes or take on debt to fund a stimulus. “The governors see that on the health and economic fronts, the president has no proposals and no leadership and they are taking advantage of that to make themselves heard,” Ms Jaime added.
Criticism of the 1978 fiscal pact, under which Mexico’s 32 states transfer sales and oil taxes to the central government but receive nearly 90 percent of their total income in the form of transfers back to them, is not new. Threats to rip up a deal that is a pillar of state finances, however, are.
They come as Mr López Obrador’s popularity is falling before key midterm elections next year. Fuelling resentment, 27 states are slated to receive less money from central coffers in the 2020 budget than last year, Ms Jaime said.
The government has reassigned spending to prioritize social programs, handouts and controversial infrastructure projects including a refinery and train project that Mr López Obrador says will reactivate the economy after coronavirus. Some business leaders in northern Mexico have called for a temporary refusal to pay taxes while there is a lockdown. The CCE warns that the economy could shrink up to 10 percent this year and 1m jobs could be lost because of the pandemic. Mr López Obrador argues that taxpayers need to keep paying or he will lack the cash to help Mexico’s poor weather the storm. He has called on 15 big companies that he says owe 50bn pesos ($2.1bn) in unpaid taxes to cough up.
Agustín Basave, head of the Movimiento Ciudadano (MC) party in Nuevo León, Mexico’s industrial heartland, said 20 percent of the states’ tax revenues should still be shared out as now “but the president should no longer keep 80 percent of our money”.
Mr Alfaro also belongs to MC; two of the governors are from the PAN and PRI parties and one is independent. One former top finance official said sales tax was collected along supply chains that could span different states. “You’d need to put frontiers and customs,” he said. “It’s like Brexit within Mexico . . . It will be very difficult to leave but you can threaten, and with threats, negotiate something.”
That could include more stimulus or a tax holiday, said Duncan Wood at the Wilson Center think-tank. “At a time like this, the president cannot risk an all-out war with the business community or these governors.” Bill Gates on the global battle with coronavirus.
Source: The Financial Times