President Enrique Pena Nieto is gambling that a surprise plan to increase social spending and raise taxes on wealthier Mexicans can quiet much of the left-wing opposition to his most ambitious proposal, opening the state-owned oil company to private investment, analysts and politicians said Monday.
Pena Nieto took aback critics and supporters alike Sunday night with a fiscal reform plan that would introduce Mexico's first national pension and unemployment insurance plans, along with its first capital gains and dividends taxes, its first carbon tax and its first tax on sugary drinks.
The plan would also close a series of tax loopholes and raise the tax rate on the country's highest earners.
Many of the measures are aimed at what was long thought to be the fiscal reform's primary goal: increasing one of the lowest tax collection rates in the developed world, analysts said. Others are clearly designed to placate the left as Pena Nieto tries to push through a controversial reform allowing private investment in the underperforming state oil firm, Pemex, before the end of his first year in office, they said.
Notably, the fiscal reform would not impose the sales tax on food and medicine, a step that had been widely expected and was certain to generate outrage from the left. The government said the reform plan, most of which needs only a majority vote in congress, would add more than $18 billion in additional revenues next year, less than many economic analysts had hoped.
"It's really a left-wing reform, a center-left-wing reform that goes in a progressive direction," said Carlos Elizondo Meyer-Serra, a political science professor at the Center for Economic Teaching and Research, a Mexico City think tank. "You create less pressure in the street. In that sense it's a correct strategy."
During his first nine months, Pena Nieto worked with the country's two main opposition parties to pass reforms of the tightly concentrated telecommunications market and the union-controlled education system.
But his leftist allies in the Democratic Revolution Party, or PRD, aren't backing his overhaul of the state oil company, Pemex — the centerpiece of his bid to reverse years of economic stagnation by addressing some of Mexico's longest-standing structural problems.
And leftist Andres Manuel Lopez Obrador, who lost to Pena Nieto last year, then split with the PRD over its cooperation with the new president, has promised a series of protests to halt the Pemex reform. Polls say most Mexicans agree with him.
Adding to the threat for Pena Nieto are thousands of members of a dissident teachers union who flooded into Mexico City to protest his education reform and have promised to keep up a series of disruptive marches.
Pena Nieto announced the fiscal reform hours after the first of Lopez Obrador's demonstrations in Mexico City. The announcement stole much of the attention from the protest, which saw a smaller-than-expected turnout.
"I think it was a proposal with a political sense of urgency," said Alfredo Coutino, Latin America director for Moody's Analytics. "The fact that it didn't include tax on food and medicine has a lot to do with the unrest that we've seen."
That was a boost for Mexico's biggest food companies, whose stock prices went up Monday, driving a 2.6 percent rise in the index that tracks the major companies listed on the Mexican Stock Exchange.
Culled from: http://abcnews.go.com/International/wireStory/mexico-president-gambles-left-leaning-reform-20204853
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