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Fiscal deficits: Mexico makes little progress

Calderón needs tougher measures to solve the fiscal deficit problem.

Mexico’s government is stuck in a rut. Its tame fiscal package announced in early September led some analysts to predict a possible sovereign downgrade and did nothing to assuage concerns about the fiscal health of the country.

President Felipe Calderón’s PAN government presented its 2010 fiscal plan to Congress but it offers few new reforms or details of how it will seek to adjust Mexico’s oil-dependent accounts.

The package now goes before the Senate, although there might be political horse-trading with the opposition PRI party over certain measures before it is passed into law.

The biggest worry is that by 2013 Mexico is expected to become an oil importer thanks to inefficiencies at state-owned Pemex.

In the short term the government plans to fill its fiscal gap, reducing it to 1.4% of GDP from 2%, with an extra P$60 billion ($4.4 billion) of debt and by tapping its oil fund. In the long term the government is proposing a series of fiscal policies to permanently fill the shortfall. These include increasing the tax on beer and cigarettes and introducing a new 4% telecoms tax, as well as imposing a temporary increase on corporation tax and putting in place an individual high-earner tax.

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