Mexico is a ticking tax bomb
Not only might money run out, the government’s tax policy may have engendered its first truly formidable opponent.
Claudia Sheinbaum and her ruling Morena party won Mexico’s presidential election in a landslide, so it shouldn’t have come as a surprise that they’d move forward with the reforms they’d promised during the campaign. The markets did not like this one bit and have been punishing the Mexican peso, stock market, and country risk rating—making the interest Mexico has to pay on its debt edge up.
Though mostly political in nature, the ruling party argues that the proposed reforms will shrink the State, saving money thanks to fewer deputies, smaller perks for judges, and less bureaucracy. Yet, less than three months before these reforms are meant to go to Congress—where Morena commands a supermajority—the only thing that seems to be shrinking is the probability that any money will be saved at all.
Gerardo Esquivel, a Sheinbaum-friendly former high ranking official of the Bank of Mexico, calculates that the savings will be 20 times smaller than the extra money Mexico will have to pay to service its debts—extra money engendered by worries surrounding the proposed reforms.
Social justice and doing justice by the market are sometimes not compatible goals, the current and incoming governments have said. The problem is that the coming Sheinbaum administration will be forced to reckon increasingly skeptical markets; markets which will have the power to stop her social justice agenda in its tracks.
As opposed to the early days of outgoing president Andrés Manuel López Obrador, the time of “republican austerity” is over. In the wake of the recent presidential campaign, social spending went up. As the country’s national oil company became an ever greater sink of wasted capital, spending also went up. And now, as the markets jitter, interest rates have been raised, and thus Mexico’s spending on debt has gone up yet again.
Something’s got to give. Given the government, both current and incoming, is unwilling to make cuts, the only thing left on the table is the dirtiest word in politics: taxation.
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