Monday, March 04, 2013

peeling the people

Mexico comes in last amongst the nations of the Organization for Economic Cooperation and Development in an important economic indicator.  And Mexico's ruling party says it is time for a change.

I am not certain it is the type of change most Mexicans will enjoy.  The indicator is taxes.  Or "revenue" -- in the sanitized Orwellian-speak of bureaucrats.  As if government produced a product worthy of voluntary contributions by consumers.

Mexico currently takes less money from its citizens than all of the other OECD nations. 18.8% of gross domestic product.  Compare that to the tax-hog rates of Denmark at 47.6% and Sweden at 45.5%, and Mexico looks like a fiscal Twiggy.

Well, the party poobahs of the Institutional Revolutionary Party (PRI) have decided it is time for a change.  And that change is going to come out of the pockets of the citizens.  The goal is to increase the tax take by 6 percentage points.  A bit higher than the current tax ratio of the United States.

Mexico collects over half of its general fund revenue from its value added tax -- a national sales tax of 16%.  Food and medications are excluded.  At least, now they are.

The power barons at PRI want to change that.  Until this weekend, PRI opposed any extension of VAT to food and drugs fully realizing that in a nation where over half of the population is impoverished, the poor would be disproportionately affected by a sales tax increase.

But these guys are practiced politicians.  To grease the skids (and perhaps a few palms later in the game), the plan is to increase the tax and then dedicate some of the proceeds for programs to help the poor.

That's right.  Take the money from the poor and then give their money back to them -- giving politicians an opportunity to take credit for being compassionate.

And why should an old expatriate care about this topic?

To start with, I have no problem with paying more taxes in Mexico.  I use services that are financed by taxes -- and I pay very little.  It would be nice to see an improvement in infrastructure.

Of course, there is a tradeoff.  Mexico will become a costlier place to live.  An immediate 16% increase in the cost of food and medicine will be a big hit for some expatriates who currently live on the border of their pensions.

But this is the discouraging news.  Remember that reference to increasing the governmental money grab by 6%?  Well, putting food and medicine under the VAT will raise the revenue rate by only 1%.

Expatriates may well start wondering where that extra 5% is currently hiding.  But the wondering should be short-lived.  Expatriates in Mexico cannot fill much of that gap.  There are too few of us -- with far too few resources.  As a friend in Morelia says, we are merely a rounding error when it comes to economic impact in Mexico.

My libertarian heart would be happy to see taxes as low as possible.  Coming in last in this sweepstakes sounds like a win to me.

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