Mexico's Economy

[Ajijic]

Calderón proposes increases in taxes

By Jens Erik Gould

Bloomberg

Mexic City - Mexican President Felipe Calderon proposed spending cuts and increases in income, corporate and sales taxes as part of "unprecedented" steps to offset diminishing oil revenue and prevent a credit-rating reduction.

The 2010 budget proposal cuts spending by 218 billion pesos ($16.3 billion), the Secretariat of Finance said. Calderón's economic package would also merge some government ministries, modify tax laws and change rules in a bid to boost competition in the energy, banking and telecommunications industries.

México is seeking to bolster its fiscal position as the deepest economic slump since the 1930s reduces tax collection and output at the state oil monopoly declines. While the proposal is "insightful and responsible" enough to boost finances next year, it may not avoid a lower credit rating, said Gabriel Casillas, the chief economist for México at UBS AG.

"They preferred to go with a less ambitious reform that has a higher probability of being approved," he said. "Even if it is approved as is, we see a low likelihood that it will avoid a downgrade because it's not creating significant new sources of fiscal revenues."

The proposed changes to tax laws would generate 176 billion pesos, the Secretariat of Finance said.

Credit rating agencies are urging the nation to reduce its dependence on oil income, which finances 38 percent of the budget. Standard & Poor's may cut Mexico's BBB+ credit rating before the end of the year, depending on how Calderón and legislators address ways to boost tax collection, analyst Lisa Schineller has said. On May 11, S&P lowered the outlook for the federal government's foreign and domestic debt, which stood at $217.3 billion as of December, to negative from stable.

`Drastic and Unprecedented'

"The economic package considers the seriousness of the circumstances that we're facing," Calderón told reporters at the presidential residence in México City. "The proposal I'm sending is a drastic and unprecedented adjustment in the exercise of public spending."

The budget calls for 3.15 trillion pesos in total spending, including investment at state-owned Petroleos Mexicanos. Non- Pemex spending would be 2.87 billion pesos under the proposal.

The income tax rate for high-earning individuals as well as corporations will rise to 30 percent, before dropping to 29 percent in 2013 and returning to 28 percent in 2014.

The proposal also calls for imposing a new 2 percent sales tax, which would include purchases of food and medicine and be used to fight poverty, Secretary of Finance Agustín Carstens said. New taxes on telecommunications, beer, gaming, the lottery and tobacco would be levied as well. The government will also end its freeze on gasoline and diesel prices.

Bank Deposits

The government also proposed to tax all cash deposits of at least 15,000 pesos at a rate of 3 percent, according to the ministry. The tax is currently 2 percent and only applies to deposits of 25,000 pesos or more. The levy would raise 2.5 billion pesos a year.

México's government would also save money by freezing salaries for high-level officials next year and cutting spending by embassies and other diplomatic services, Calderón said.

The budget proposal calls for a deficit of 60 billion pesos in 2010 and 40 billion pesos in 2011, not including debt on investments by state-owned Petroleos Mexicanos. The budget would be balanced in 2012, according to the ministry. The World Bank may finance part of the deficit, Carstens said in a news conference in México City.

The 2010 deficit including Pemex debt would be 2.5 percent of gross domestic product, compared with 2.1 percent in 2009, according to the ministry's statement. Under the proposal, the country would run a deficit of 3.1 percent in 2010 for its public sector borrowing requirements, the broadest measure of government indebtedness that includes off-balance-sheet items.

Economic Outlook

Carstens said larger deficits in the country would be "self-destructive." Growth in 2010 is seen at 3 percent, while the government said it forecasts the economy will shrink 6.8 percent this year. The budget is based on a forecast for the country's oil exports to sell for an average of $53.90 per barrel. Oil output will be 2.5 million barrels a day in 2010, Carstens said. The government will also ask lawmakers to increase the power of the nation's antitrust agency and change rules for the telecommunications, energy and financial industries to promote more competition and lower prices.

Merging Ministries

Under Calderón's proposal, spending will be contained in part by merging the Comptroller Ministry with the president's office, the Secretariat of Tourism will be folded into the Secretariat of Economy and the Secretariat of Agricultural Reform will be taken over by the agriculture and social development Secretariats.

Mexico's tax collection has fallen as the economy shrank 10.3 percent in the second quarter from a year earlier, the biggest quarterly drop since 1932. Oil revenue has fallen because of a 31 percent decline in prices over the past 12 months and diminishing production at Petroleos Mexicanos.

[raqueteer]

Calderón proposes increases in taxes

By Jens Erik Gould

Bloomberg

Mexic City - Mexican President Felipe Calderon proposed spending cuts and increases in income, corporate and sales taxes as part of "unprecedented" steps to offset diminishing oil revenue and prevent a credit-rating reduction.

The 2010 budget proposal cuts spending by 218 billion pesos ($16.3 billion), the Secretariat of Finance said. Calderón's economic package would also merge some government ministries, modify tax laws and change rules in a bid to boost competition in the energy, banking and telecommunications industries.

México is seeking to bolster its fiscal position as the deepest economic slump since the 1930s reduces tax collection and output at the state oil monopoly declines. While the proposal is "insightful and responsible" enough to boost finances next year, it may not avoid a lower credit rating, said Gabriel Casillas, the chief economist for México at UBS AG.

"They preferred to go with a less ambitious reform that has a higher probability of being approved," he said. "Even if it is approved as is, we see a low likelihood that it will avoid a downgrade because it's not creating significant new sources of fiscal revenues."

The proposed changes to tax laws would generate 176 billion pesos, the Secretariat of Finance said.

Credit rating agencies are urging the nation to reduce its dependence on oil income, which finances 38 percent of the budget. Standard & Poor's may cut Mexico's BBB+ credit rating before the end of the year, depending on how Calderón and legislators address ways to boost tax collection, analyst Lisa Schineller has said. On May 11, S&P lowered the outlook for the federal government's foreign and domestic debt, which stood at $217.3 billion as of December, to negative from stable.

`Drastic and Unprecedented'

"The economic package considers the seriousness of the circumstances that we're facing," Calderón told reporters at the presidential residence in México City. "The proposal I'm sending is a drastic and unprecedented adjustment in the exercise of public spending."

The budget calls for 3.15 trillion pesos in total spending, including investment at state-owned Petroleos Mexicanos. Non- Pemex spending would be 2.87 billion pesos under the proposal.

The income tax rate for high-earning individuals as well as corporations will rise to 30 percent, before dropping to 29 percent in 2013 and returning to 28 percent in 2014.

The proposal also calls for imposing a new 2 percent sales tax, which would include purchases of food and medicine and be used to fight poverty, Secretary of Finance Agustín Carstens said. New taxes on telecommunications, beer, gaming, the lottery and tobacco would be levied as well. The government will also end its freeze on gasoline and diesel prices.

Bank Deposits

The government also proposed to tax all cash deposits of at least 15,000 pesos at a rate of 3 percent, according to the ministry. The tax is currently 2 percent and only applies to deposits of 25,000 pesos or more. The levy would raise 2.5 billion pesos a year.

México's government would also save money by freezing salaries for high-level officials next year and cutting spending by embassies and other diplomatic services, Calderón said.

The budget proposal calls for a deficit of 60 billion pesos in 2010 and 40 billion pesos in 2011, not including debt on investments by state-owned Petroleos Mexicanos. The budget would be balanced in 2012, according to the ministry. The World Bank may finance part of the deficit, Carstens said in a news conference in México City.

The 2010 deficit including Pemex debt would be 2.5 percent of gross domestic product, compared with 2.1 percent in 2009, according to the ministry's statement. Under the proposal, the country would run a deficit of 3.1 percent in 2010 for its public sector borrowing requirements, the broadest measure of government indebtedness that includes off-balance-sheet items.

Economic Outlook

Carstens said larger deficits in the country would be "self-destructive." Growth in 2010 is seen at 3 percent, while the government said it forecasts the economy will shrink 6.8 percent this year. The budget is based on a forecast for the country's oil exports to sell for an average of $53.90 per barrel. Oil output will be 2.5 million barrels a day in 2010, Carstens said. The government will also ask lawmakers to increase the power of the nation's antitrust agency and change rules for the telecommunications, energy and financial industries to promote more competition and lower prices.

Merging Ministries

Under Calderón's proposal, spending will be contained in part by merging the Comptroller Ministry with the president's office, the Secretariat of Tourism will be folded into the Secretariat of Economy and the Secretariat of Agricultural Reform will be taken over by the agriculture and social development Secretariats.

Mexico's tax collection has fallen as the economy shrank 10.3 percent in the second quarter from a year earlier, the biggest quarterly drop since 1932. Oil revenue has fallen because of a 31 percent decline in prices over the past 12 months and diminishing production at Petroleos Mexicanos.

I find it appalling, after all the scams perpetrated by ratings agencies over the last year, that ANYONE would take then seriously. One only needs to scan news articles regarding UBS and others, to get the message.