AMLO outside the Senate, Monday, October 26

Worker's Party Deputy Mario di Costanzo Tears Apart Carstens Economic Plan

Wednesday, September 9, 2009


There's no two ways about it: it's a stick-up. Mexico's behemoth Finance Minister Agustin Carstens, he of the 3,000 peso-a-day meal stipend, announced a fiscal package yesterday designed to lead the country directly to penury, or revolution, or both. The proposed changes, designed to cover a 299 billion-peso gap between federal revneues and expenses, amount to a torrent of new taxes such as Mexico has never seen in its history. To whit:

1.) Increase of the top income tax band from 28% to 30%. Fine, and even laudable, if this were only to apply to upper-income earners, but, in this case, the increase of the upper band is going to tug all the bands underneath up with it. Result: if you earn over 4,000 pesos a month, the increase is going to affect you as well.

2.) A brand spanking new tax of 2% on all goods and services, food, medicines and books included, called - and get this - "contribution for the fight against poverty". And when I say it applies to everything, I mean everything, including, yes, things already covered by the 15% IVA tax (raising the effective rate to 17%). Viva la double taxation! According to diphead Carstens, the tax will not in fact hit the poor, as the money paid (by them) will go back into programs designed to help them. Plus, "those who consume more will pay more." Appears that Mr. C. doesn't quite get the concept of a regressive tax. In short (and how sad that a poor blogger has to explain basic economics to a finance minister), 2% of a low income (20 pesos less a month for a minimum wage earner of 1,000 pesos) weighs much, much more than 2% of a large income, which can easily absorb it. In Mexico, poor families spend 80% of their income on food; rich families, less than 2%. Taxing food and medicines, even if the full weight of the IVA is not be thrown onto them as originally considered, is a cruel, cruel way to suck a few more centavos disproportionately out of an already impoverished population.

And plus, once a tax like this is in place - this new 2% goods and services tax - it then becomes very easy to surreptitiously raise it in the future to 3%, then 5%, then 10%....

3.) Increase the tax on cash deposits in bank accounts from 2% to 3% and lower the threshold from 25,000 pesos per month to 15,000. The tax, designed to crack down on the informal economy, in effect becomes another poor tax. The wealthy, who do everything by check and electronic transfer, are not affected. It is hardly the poor's fault that Mexico remains such a cash-oriented economy and that bank accounts are so riddled with commissions and hidden costs that nobody in their right mind would want to have anything to do with one, anyway.

4.) Establish another new tax of 4% on the use of telecommunication services: cell phones, cable TV and internet connections. Again (how many times does this need to be said until someone listens?), a regressive tax that will hit harder on lower-income earners. It could be argued that only more affluent people have cable and internet access (not exactly true when you see how many satellite dishes there are in the poorer barrios), but considering how hard it is to get a land-line telephone (thanks Slim), can the same be said about cell phones?

5.) An increase in "sin" taxes: 80 centavos per pack of cigarettes, a 3 centavo increase on beer from 25% to 28%, and a new tax of 3 pesos per liter on spirits with an over-20% alcohol content. As of 2010, the tax on games of chance and drawings would increase from 20% to 30%. Of all the taxes mentioned so far, these are perhaps the most defensible, as they supposedly penalize "bad" behavior which implies a social cost to society. Needless to say, however, they are also REGRESSIVE TAXES.

6.) Last but most insidious of all, the plan seeks to revive the monthly increases on gasoline and natural gas that plagued us throughout 2008 and were suspended in the spring through public pressure. That means that once again, gasoline and gas prices will go up every month, at the least. The idea here is to withdraw subsidies on imported gasoline and gases in order to "harmonize" (what a lovely word) the prices in Mexico with the prices in countries where, say, people earn twenty times as much. This is a classic catch-22: for years, Mexico's neo-liberal governments have systematically dismantled Mexico's productive capacity in energy, refusing to build new oil refineries, sabotaging already-existing operations, and shadow-privatizing as much as they could of the production chain to crony-capitalist price gougers (the buy-gas-from-Peru-at-the-highest-possible-price-through-Spanish-company-Repsol scheme, amply denounced at the time by Andres Manuel López Obrador, is simply one case in point). Now that Mexico has become prostrate at international feet for gas and gasoline, then is the moment they choose to then withdraw the subsidies that have kept the prices moderately affordable until now.

7.) And on top of all this, the government is borrowing more money anyway from the International Monetary Fund, mortaging Mexico's meager future to the same institution that wields its loans like weapons to force hard-pressed countries to sell their national assets wholesale.

It should come as no surprise that the fiscal package does nothing to genuinely touch or tax the exaggerated salaries of the bloated upper bureaucracy that will be sucking down all these new taxes in the first place; does nothing to reduce the generous tax benefits enjoyed by the large corporations - preferential rates, seemingly-indefinite tax deferrments, and deductions to the point that said companies often receive windfalls back at the close of the year in "overpaid" taxes; does nothing to tax the stock-market speculators who did so much to cause the crisis (how about a transaction tax on every stock market transaction, paid by nationals and internationals alike? How about a speculation tax on stocks bought and sold within a very short lapse of time? How about an old-fashioned capital-gains tax?) and who have been making a mint on the Bank of Mexico's dollar auctions designed to prop up the ailing peso.

If approved by Congress, the new taxes will cause Mexico's economy, already set to fall between 7-8% this year, to flatline. This will depress tax receipts even further, creating new gaps which, if precedent serves as any guide, will be filled - or attempted to be filled (keep your eye on the moving target) by still more of the same. Meanwhile, Rome burns, and Felipe, on his balcony, plays the violin.