UPDATE 5-Mexico lawmakers revise tax plan, oil price to plug shortfall
By Miguel Gutierrez and Dave Graham MEXICO CITY, Oct 18 (Reuters) - Mexico's lower house of Congress on Friday voted to raise the oil revenue estimate in next year's budget to help close a funding gap created by cutbacks to President Enrique Pena Nieto's planned tax reform. Giving final approval to the revenue section of the 2014 budget, the lower house of Congress proposed raising the oil price forecast in the plan to $85 per barrel from $81. Mexico's crude mix has averaged around $96 a barrel this year, according to Thomson Reuters data, and the Finance Ministry has often opted for conservative price estimates. Before lawmakers made the oil price change, Finance Minister Luis Videgaray had said various cuts to the president's proposed tax overhaul would leave a $4.4 billion shortfall. The lower house earlier backed the revised fiscal bill, rolling back plans to apply sales tax to rents, mortgages, property sales and school fees, while raising the top income tax rate on a sliding scale to 35 percent from 30 percent. The broad sweep of the bill that includes measures to tax capital gains on the stock market, close loopholes exploited by companies and levy a charge on soft drinks, met with stiff resistance among conservatives and intense corporate lobbying. But Videgaray noted Mexico had one of the weakest tax takes in the industrialized world, and needed stronger revenues. "It's always controversial to propose taxes, but it's something that falls to the government. Nobody likes it," the finance minister told Mexican radio on Friday. Among the measures added this week to the president's fiscal plan was a 5 percent tax on junk food in Mexico, which has one of the highest rates of obesity on the planet. MORE IN STORE? The lower house revisions proposed a weaker exchange rate of 12.90 pesos per dollar in next year's budget, compared with the prior estimate of 12.60 per dollar. Jose Trejo, a member of the opposition conservatives who heads the lower house finance committee, said the changes to the revenue forecasts would make up for most of the tax shortfall. The lower house retained a proposal for a budget deficit of 1.5 percent of gross domestic product in 2014. Videgaray said the cuts to the tax reform meant it would only improve Mexico's tax take by about 1 percentage point of GDP in 2014, 0.4 of a point less than originally planned. He noted the revised plan would boost receipts by nearly 2.8 percent of GDP by 2018, a tenth of a point below the forecast in Pena Nieto's original initiative. The tax bill must still be passed by the Senate, which is expected to do so by the start of November. The bill is tied to the 2014 budget, which must be signed off on by mid-November. The original budget proposal eyed economic growth of 3.9 percent for next year, a forecast lawmakers maintained. Latin America's second-biggest economy has struggled this year and is expected to muster growth of barely 1 percent in 2013. Many analysts are also skeptical the fiscal reform will lead to a significant improvement in Mexico's tax take. Central bank Governor Agustin Carstens said the government may need to put forward further fiscal reform. "Perhaps collecting less (tax) will eventually oblige the Finance Ministry to come back with another proposal during this administration," Excelsior TV cited Carstens as saying in an interview posted on its website on Friday. "It is a good move in several directions. For instance, I think generalizing sales tax on a national level is crucial," Carstens said. "I also think it is a good move because it will ensure spending discipline." Earlier this year, Pena Nieto's Institutional Revolutionary Party opened the door to widening the application of sales tax to include food and medicine, a move many economists say is crucial to strengthening Mexico's tax-raising powers. But the government harbored concerns that such a move could ignite resentment among the poor, who make up nearly half the population in Mexico. In the end, the Finance Ministry dropped the idea when the economy suffered a contraction.
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