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Mexican government to raise taxes, cut spending


Mexico City : The Mexican government has proposed a 2010 budget that includes deep cuts in public spending and increased taxes on income and consumption to cover an expected revenue shortfall of $35.9 billion.

President Felipe Calderon’s administration is forecasting economic growth of 3 percent next year and an inflation rate of 3.3 percent, according to the bill presented to Congress Tuesday.

The legislation, which was submitted by Finance Secretary Agustin Carstens, projects a 2010 fiscal deficit of 0.5 percent of gross domestic product, equivalent to some 60 billion pesos ($4.6 billion).

According to the government’s projections, the Mexican economy – hammered by a global financial crisis-linked decline in US imports of the country’s manufactured goods – will shrink 6.8 percent in 2009.

A year-on-year decline in oil revenues, a drop in tourism due to the swine flu and drug-related violence and reduced remittances from Mexicans living abroad also have hit the Mexican economy hard.

According to the bill, the average price of Mexico’s crude mix is projected to rise slightly from $51 a barrel this year to $53.90 in 2010, although oil production is expected to slip from an average of 2.62 million barrels per day (bpd) in 2009 to 2.5 million bpd next year.

The finance department said that although government revenues in 2010 are expected to be slightly higher than those of this year, the 2010 projection is below the initial revenue forecast for 2009 due to the continued trend toward lower oil production.

The government is projecting that public revenues in 2010 will come in some 477.5 billion pesos ($35.9 billion) lower than in 2009.

To cover this enormous shortfall, the government’s proposal cuts spending by some 218 billion pesos ($16.7 billion), including eliminating folding three federal departments into other ministries, reducing salaries of top public officials and implementing a freeze on new public-sector hiring and “essential spending”.

But Carstens said that even with the spending cuts the government will be left with an estimated 300-billion-peso ($22.3 billion) deficit, which will have to be covered with taxes, emergency funds and 60 billion pesos ($4.5 billion) in borrowing.

The budget proposal, therefore, also includes tax increases on income and consumption, in particular special levies on tobacco, alcoholic drinks, cigarettes, telecommunications, gambling activities and the lottery.

A new general consumption tax of 2 percent also will be implemented; the revenues will be earmarked to fight poverty, which afflicts nearly half of Mexico’s 107 million inhabitants.

Analysts say this new tax is in reality an increase in the sales tax from 15 percent to 17 percent.