Mexico's ruling party convenes to seek change on tax, energy

Reuters News
Posted: Mar 02, 2013 12:39 PM
Mexico's ruling party convenes to seek change on tax, energy

MEXICO CITY (Reuters) - Mexico's ruling Institutional Revolutionary Party begins a congress on Saturday to overhaul its manifesto and open the door to major changes in energy and tax law to spur faster economic growth.

The PRI, as the party is known, plans to vote on measures that would allow President Enrique Pena Nieto's administration to consider imposing a value added tax (VAT) on food and medicines and to allow more private investment in state oil firm Pemex.

Pena Nieto, who took office in December, has pledged to boost annual growth in Latin America's second biggest economy to up to six percent. To do this, Mexico must overhaul state oil monopoly Pemex and improve its paltry tax take, the government says.

Without levying a value added tax on food and medicines, economists say Mexico may struggle to raise tax revenues, which are currently the lowest in the Organistion for Economic Co-operation and Development (OECD) as a proportion of gross domestic product.

However, applying the value added tax to food and medicine is controversial because it would fall most heavily on the poor, about half the country's population.

Food and medicine have been exempt from the tax, but senior PRI party officials say that element will be removed to give the party more options to broaden the tax take.

"VAT is important. But it's by no means the center of the fiscal reform," PRI party chairman Cesar Camacho said this week, looking ahead to the congress.

The PRI, which ruled Mexico for 71 years straight until 2000, used its stance on the VAT to thwart efforts by the conservative National Action Party (PAN) to increase the tax take during its 12 year rule, which ended in 2012.

Since recapturing the presidency, the PRI 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.

Yet the changes sought by Pena Nieto run contrary to many old tenets of the PRI, a party which started on the left and gradually drifted toward the right during its long rule.

Overhauling Pemex, a symbol of Mexican self-reliance which provides a third of the federal tax take, is particularly sensitive for the PRI, which created the company when then-president Lazaro Cardenas nationalized the oil industry in 1938.

Output of crude has slumped to less than 2.6 million barrels per day from 3.4 million in 2004, and lawmakers worry the oil industry will be left behind unless it can improve performance.

Pena Nieto aims to make the monopoly more efficient and more independent. He has vowed to bring in more private capital and has taken inspiration from Brazil's state-controlled oil firm Petrobras, part of which has been publicly listed.

But he is constantly having to defend his administration from accusations that he plans to privatize the oil industry.

During the congress, the PRI will reaffirm that oil is the property of the nation, but stress the need to strengthen Pemex and open the company to more outside investment, a senior party lawmaker told Reuters, speaking on condition of anonymity.

"We want to keep our options open," he said.

(Reporting by Dave Graham; Editing by Vicki Allen)