Declining oil pushes Mexico to rethink taxes

Mexico needs better tax collection — and fast. Production at Pemex, the state oil monopoly and biggest taxpayer, is falling. Evasion among businesses and individuals is rampant. At a time when Pacific Rim trade rivals such as China are investing in superhighways and research centers to speed economic growth, Mexico is struggling to fund basics such as sewers and police.

Experts across the political spectrum concur that Mexico needs significantly higher tax receipts to improve its competitiveness and fight poverty. The tough part for Calderon, who took office Dec. 1, will be getting people to agree on who should pay.
The biggest culprit is oil. Petroleum sales and related taxes have generated more than $335 billion in the past six years. That gusher of riches has removed the urgency for legislators to act. It’s easier to squeeze more money out of Pemex than to enrage voters with tax increases or tougher enforcement. Oil revenue last year funded nearly 40 percent of public spending.

Now production at the country’s largest oil field, Cantarell in the Gulf of Mexico, is declining rapidly. With nothing on the horizon to replace it, Calderon knows that Pemex must be allowed to reinvest more of its earnings to fund exploration and development.

Mexico has a little more than a decade’s worth of proven reserves remaining, increasing pressure on Calderon to make headway on the nation’s tax mess during his six-year term. His financial team has been meeting quietly with legislators to start hammering out a consensus.

Sun Sentinel