Mexico is subsidizing about 35% of gasoline’s retail price using funds from its oil windfall, which is having a net neutral effect on public finances, the Finance Ministry’s chief economist said.
Regular gasoline in Mexico is selling for about 22 pesos ($1.06) per liter instead of the 34 pesos it would cost without the government’s relief on so-called IEPS excise taxes, Rodrigo Mariscal told the Norte Economico podcast from Banorte bank published Wednesday.
“We can say with certainty that we have enough fiscal space to be able to continue helping IEPS on gasoline, without harming or putting at risk the stability of public finances,” Mariscal said.
Mexico’s President Andres Manuel Lopez Obrador pledged earlier this year to use the extra income from higher oil export prices to ensure that fuel costs at the pump don’t rise more than inflation. The government may make gradual adjustments to the subsidies if gasoline prices keep rising faster than oil, Mariscal said.
The fuel tax relief will cost the government around 1% of GDP in uncollected taxes in 2022, the chief economist said.
The fiscal deficit is at around 3.1%, which Mariscal said is “quite manageable” and would remain under control even under scenarios of financial stress.
Source: El Financiero