In an unexpected turn, Mexican President Enrique Pena Nieto is proposing sweeping new social programs, including the first nationwide pensions and unemployment insurance. It would be financed in part by cutting tax loopholes given to big business over the years.
The surprise came on Sunday, when Pena Nieto gave a speech that had been billed as his announcement of a tax system overhaul. He went much further, unveiling a variety of programs to improve Mexico’s social welfare.
In addition to the programs for pensions and job-loss payments, he proposed the country’s first carbon tax on fossil fuels used by industry, a levy often touted as a way to combat climate change. He also called for a tax on soft drinks, which he said is needed to combat Mexico’s high rate of obesity.
“The tax reform is a social reform,” Pena Nieto said in the speech at the presidential residence.
He said he would allow slight deficit spending this year, and a 1.5 percent-of-GDP deficit next year, to spur the flagging economy, offer incentives to lure the 60 percent of Mexicans who work in the “informal” sector into tax compliance and create a stabilization fund to save excess tax revenues from boom years for use during lean times.
The country as a whole does not have unemployment insurance, only a patchwork of pension plans. A privately managed individual retirement system instituted in the 1990s includes only a minority of workers, most of whom have built up only very small balances in their accounts.
Pena Nieto did not provide specifics of the social plans or tax changes, but said that “those who have more income will pay more.”
The proposals must be approved by both houses of congress and a majority of state legislatures because they involve constitutional changes.
Seeking to spur specific industries, Mexico over the decades has granted special tax deferments, depreciation allowances, tax consolidation and other benefits to companies.
“Those privileges that have no reason to exist will end,” Pena Nieto said.
The changes are part of a series of ambitious reforms that Pena Nieto hopes to push through in his first year in office.