* Goal is to boost tax take, revamp flagging oil industry
* Months of tough negotiations ahead before plan emerges
* Changes run contrary to many old tenets of the PRI
By Miguel Gutierrez and Michael O'Boyle
MEXICO CITY, March 2 Mexico's ruling
Institutional Revolutionary Party paved the way on Saturday for
possible tax hikes and an overhaul of state oil giant Pemex as
it seeks to spur growth in Latin America's second-biggest
PRI delegates at a congress in Mexico City voted to change
the party's position on refusing to consider the imposition of a
value-added tax on food and medicine, and giving the party scope
to open up Pemex to more private capital.
President Enrique Pena Nieto wanted the changes, which run
contrary to many old tenets of the PRI, so he would have more
room to maneuver in boosting Mexico's low tax take and revamping
its flagging oil industry.
PRI Congressman Javier Trevino said the changes would allow
Mexico to modernize its tax system and energy sector, and give
it a chance to devote more resources to helping the poor.
"This is a good signal," he said, adding the modifications
would allow the PRI to push for constitutional changes to entice
foreign investors to the energy sector.
The centrist PRI lacks a majority in Congress, and is likely
to face months of tough negotiation before it can lay out
detailed plans on tax and energy reform. Those measures are
expected to be presented in the second half of this year.
No party has had a majority in Congress since 1997,
hindering efforts to enact major change on tax and energy law.
But Pena Nieto surprised many critics when he unveiled a
broad pact with the main opposition parties to work together on
economic reform shortly after he took office in December.
PRI financial experts are looking at ways of raising the
Mexican tax take - currently the lowest in the Organization for
Economic Cooperation and Development as a proportion of gross
domestic product - by up to 6 points of GDP.
Applying VAT to food and medicine is controversial because
the burden would fall most heavily on the poor, about half the
country's population. PRI lawmakers say a large chunk of any
additional revenue generated must go toward helping the poor.
One option under discussion is applying a reduced rate of
VAT on food and medicine. But even if the full rate of 16
percent were levied, it would only boost the tax take by about 1
percentage point of GDP.
In its revised platform, the PRI agreed the state would
remain in control of Mexico's energy resources. But it added a
section saying it would "design mechanisms to generate greater
private-sector participation in energy production."
"But this isn't giving oil to foreigners," said Eduardo
Bernal, a PRI delegate at the congress.
Cutting fiscal loopholes, getting the millions of workers in
the underground economy - nearly a third of the labor force - to
pay taxes and improving states' tax-raising ability are among
the measures the government is weighing to increase revenues.
The PRI, which ruled Mexico from 1929 to 2000 before
regaining power last year, blocked efforts by the conservative
National Action Party, or PAN, to extend the VAT to food and
medicine during the previous 12 years.
Since the party recaptured the presidency, its leadership
has made the case for sweeping change to bolster the economy,
which underperformed its main regional peers under the PAN,
growing about 2 percent annually for most of the past decade.
Overhauling Pemex, a symbol of Mexican self-reliance that
provides a third of the federal tax haul, is particularly
sensitive for the PRI, which created the company when President
Lazaro Cardenas nationalized the oil industry in 1938.
Output of crude has slumped to less than 2.6 million barrels
a day from 3.4 million in 2004, and lawmakers worry the oil
industry will be left behind unless it can improve performance.
"We plan an energy reform that mulls an opening in areas
where we don't have the capacity to do it, so Pemex can make
alliances with private capital," said Marco Bernal of the PRI,
head of the energy committee in the lower house of Congress.
Pena Nieto aims to make the monopoly more efficient and more
independent. He has taken inspiration from Brazil's
state-controlled oil firm, Petrobras, part of which has been
publicly listed, and said in January the two might pursue joint
But he has had to defend his administration from accusations
he plans to privatize the oil industry.