Alternatives to Privatization

It has been said over and over and over again, but nevertheless bears repeating over and over again: it is not necessary to privatize Pemex. The only "crisis" Pemex- the world's second most-profitable oil company after Exxon - is in is self-induced, and whatever is self-induced can, logic dictates, be self-uninduced. If Pemex hasn't invested in new technology and new refineries over the last twenty-five years or so, it is not, as privatization mavens disingenuously argue, due to lack of resources or declining oil reserves; it is very simply because the federal government cannibalizes 80% to 90% of its revenues to fund the federal budget, corruption, perks, bloated salaries and campaign funds (read: 2001's Pemexgate), leaving poor Pemex itself with dimes on the dollar to do anything with. And this because the Mexican Feds have become so addicted to sucking on the oil teat (just as their neighbors to the north are addicted on sucking on its counterpart: the military spending teat) that they have never managed to come up with ways to provide an independent tax base for all of the (very dubious, to be sure) ways it has of spending money. Pemex funds 40% of the annual federal budget. Leave it alone to invest its own substantial resources in growth (Mexican oil just topped a $100 dollars a barrel today in international markets; it only costs $4 dollars to extract the same barrel) and it will grow. Imagine doing anything productive yourself if 90% of your blood was consistently sucked dry?

Vampiric allusions aside, here are some very modest proposals for providing other means of revenue for the 40% of the federal budget oil revenues currently provide:

1.) Cut government spending and waste: top government ministers and judges in Mexico routinely earn $50,000 dollars A MONTH in pay, benefits and perks - think there may be anything to cut there? Calderón, despite having lost the election, now finds himself to be of the world's top-paid "heads of state", and once he retires (or is forced out, which would be preferable), he will keep his fat salary in terms of a fat pension for-life, just like the rest of the nation's already-fantastically-wealthy-so why-in-God's-name-do-they-need-a-public pension ex-presidents. Cutting salaries and waste was exactly, in fact, what Andrés Manuel López Obrador did as Mayor of Mexico City, and was a fundamental (and much poo-pooed) part of his platform in the 2006 Presidential campaign. Far from being the wild-eyed leftist the PAN and complicit media made him out to be, this part of Obrador's plan (along with his insistence on breaking up the big monopolies that strangle the country's economy) should make any true conservative warm to the gills. But in Mexico (and everywhere else, really), it's not about ideaology. Ideaology is just the smokescreen for privileged classes to retain privileged positions which provide them with lots and lots o'privilege. Excessive spending and waste at the federal level has only gotten worse since 2006, by the by.

2.) I am not so naive as to believe that cutting waste and salaries alone will fill the gap. Not to worry, there are plenty of other ways. How about raising the top income tax level bracket back to 35%, where it was before the Fox administration flattened it to 28%? A generation after Reaganomics has been discredited, Fox lowered top income-tax and corporate rates while pushing to extend the IVA sales tax to food and medicines - cutting taxes on the rich and raising them on the poor, making Mexico's generally regressive tax structure even more so. Sound familiar? Not only raise the top bracket back to where it was, then, but at a millionaires' surcharge on top of it of 40%, or even 50% on the top bracket. The top bracket in the US after World War II was 70%, lest we forget, a time of some of the fastest growth in the history of the States. Last I heard, no one has ever accused the US of A of being a communist state. And considering how vast is the wealth of Mexico's top millionaries (amongst the richest people the world has to offer), a higher upper tax bracket would hardly put a nick in their armor...just kick their tax-avoidance accounting departments into overdrive, which is another story.

At the same time, the IVA sales tax should be reduced back to 10%, which it was up until quite recently. This is a regressive tax, and just because it's easier to collect than income and other such taxes is no excuse for a hapless, ineffective system to continue to fund itself on the backs of the poor.

3.) Tax stock market earnings. As I mentioned in a previous post, Mexico does not tax stock-market earnings at all - other capital gains are taxed just like regular income. Apply a genuine capital gains tax, including stock market income, and you could raise plenty. I didn't have the time to crunch the numbers, but will leave that to those who are better able. I hardly imagine people will stop investing in the Mexican stock market - which within Mexico is strictly a wealthy person's game - simply because of a capital gains tax which plenty of other countries with larger and more successful stock markets levy.

4.) Apply a transaction tax on international capital flows. This tax, known as the "Tobin tax," would apply a small tax on currency flows into and out of Mexico. The tax, as economist James Tobin himself has said, would cushion exchange rate fluctuations, which Mexico has historically proven itself to be highly vulnerable to. But beyond that (and beyond Tobin's personal justification for it), the tax - even at a very low rate of 0.1% of the amount of the transaction - would generate necessary income, and require those international traders who make tax-free money off of Mexico, and whose injections and abrupt withdrawals of investment destabilize the economy to the detriment of its citizens - to pay a little for the privilege.

5.) Stop the white-collar bailouts. The FOBAPROA bank bailout (fattening up national banks in order to allow them to be sold off, turning private debt based on some dumb decisions into public debt), the periodic highway rescues, the tax give-backs to companies that do services for the President in turn (to name just one example, the JUMEX juice company's tax exemption for participating in the 2006 campaign in favor of Fox's far-from-first-choice, Calderón; it goes without saying that the President's discretionary power to grant such tax concessions by decree must also be done away with). And at the same time, eliminate the tax exemptions designed to lure companies into the country, only for them to make billions and send all the profits back home. The tax exemptions for the maquiladoras operating along the Mexico-US border constitutes just one scandalous example. And stop making sweetheart deals with companies like Repsol which only raise the prices for the folks at home. Anybody notice the cost of a small tank of natural gas (used by just about everyone in Mexico - who can afford it - for stoves, ovens and boilers for heating water) about to top $200 pesos?

So there, just off the top of my head, are five ways the government can raise the revenue it needs in order to provide Pemex with the budgetary autonomy it needs. Any more suggestions? Send 'em in!