Mexican fiscal history is characterized by a constant: poor tax collection. Despite several attempts to reform the tax system, no change has resulted in a level of tax collection that would place Mexico close to that of countries at similar income levels. In “The Superfluous Congress: Executive Dominance and Business Lobbying in Mexico’s 2013 Tax Reform” published in the current issue of Mexican Studies/Estudios Mexicanos, Mónica Unda-Gutiérrez analyzes the roles played by the legislative, executive, and business sector in Mexico’s 2013 tax reform, drawing on original field-research findings. Unda-Gutiérrez’s close analysis of the decision-making process sheds light on executive-legislative relations in policymaking and helps elucidate the role played by business organizations in the tax-policymaking process. Unda-Gutiérrez answers our questions below about why the 2013 Mexican tax reform ultimately achieved little and the implications for Mexico’s future.
You focus on the factors that explain the meager results of the tax reform in Mexico under the Peña Nieto administration. What does your study teach us more generally about the challenges important reforms confront in Mexico?
It teaches us at least two things about the challenges for getting transformative reforms passed in Mexico. First, the business sector is a dominant actor in shaping economic policy, typically in opposition to any changes to the status quo. Business groups were very good at lobbying the Ministry of Finance and Congress in the tax reform episode. They were a cohesive and well-organized opposition that employed money, technical expertise, and media access to influence the course of the tax bill. Second, policymaking relies much more heavily on the will of the executive branch than on the legislature. I found that the Mexican congress was not a serious actor at the negotiating table on tax matters. It is very much subordinated to the executive and much of its weakness lies in his lack of technical capacity. The predominance of the executive means that a lot can be decided behind closed doors (as opposed to on the legislative floor). Furthermore, a submissive legislature jeopardizes checks and balances and political representation.
In the essay you argue that a sound tributary system is key for a healthy democratic regime. Why is this important in Mexico and what sectors of the population are negatively affected by the lack of a balanced tax system?
One of the greatest developmental challenges that Mexico has faced in recent history is a poor tax system. Tax systems can do two things: fund the government and redistribute income. The Mexican tax system has yielded mediocre results on both counts since at least the 1940s. The poverty of the Treasury cripples the State to make investments in infrastructure, to spend on public services, to promote economic growth, or to pay for anti-poverty programs. In short, it limits the developmental potential of the State. This is bad for every Mexican but especially for those that rely on state transfers (poor and low-income people). Mexico is also known for its crude inequality. Even though inequality—in all its dimensions—is pernicious for economic growth and poverty reduction, the tax system has never been used as a redistributive tool. The tax system’s malfunction reflects an unhealthy democratic regime, where the voice of most is not heard and their needs are not met.
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The Covid-19 pandemic has placed a premium on the public sector, especially the health system. How do you think the pandemic may affect public discussion about the need for a serious tax reform?
The Covid-19 pandemic has undoubtedly resulted in high social and economic costs, and it has also shown, in a more strident way, how unequal Mexico is. These public health and economic crises have hit those in the lower-income strata harder than other sectors. The pandemic has finally shown to most people that the health system has been underfunded for a long time, something that is also true for the education system and other public services. Therefore, to the extent that the pandemic has uncovered the need for greater public resources, indeed, this can be portrayed as an opportunity to reform the tax system, to divert public discussion into that direction. However, bringing change to the tax system is not easy, and I see a more encouraging context at the subnational level. States and municipalities, in many ways, have been at the frontline and some have uncomfortably been awakened to their fiscal reality: they depend on the money the federal government sends them, and they do a bad job at collecting taxes. As a result, the discussion about the property tax at the municipal level has taken on increasing attention by policymakers. If local governments are clever enough to exploit this window of opportunity, they may be positioned to to justify a more extractive property tax by appealing to a sense of fairness for local citizens. Winning the public opinion battle will be crucial to overcome powerful opposition to tax increases and compel higher levels of compliance by property taxpayers.