Translated by Alise Rule
Mexico's Secretary of the Treasury (SHCP), Luis Videgaray, affirmed that the tax reform to be presented to Congress in the second half of 2013 will have among its principal objectives combating the informal economy.
At the eighth Mexican Financial Summit, speaking before foreign investors, officials and executives of financial corporations, the Secretary listed each one of the reforms sought by the Enrique Peña Nieto administration. To start, he gave a warning about informal employment:
“If something has hurt the productivity of the Mexican economy, it is the fact that, according to the most recent statistics, more than half of the workforce is working informally.”In fact, according to the National Institute of Statistics and Geography (Inegi), in Mexico there are around 29 million people who have informal jobs, out of an Economically Active Population of approximately 52 million. In other words, 6 out of every 10 Mexicans work without benefits, social security, or fixed wages, in addition to not contributing to the tax system.
Pointing the finger at this issue, the Secretary warned that in terms of production, informal work does not invest in technology or human capital, and there is no training involved. Therefore, the average productivity of the informal sector is barely one-third of the productivity in the formal sector. He clarified that:
“this implies, when I speak of a tax reform, that not only do we have to examine the issue of revenue and taxes, but also of public spending, because today we have a spending structure that promotes an informal economy.”He elaborated that the program 'Pension for Adults over 65', requires the population not to have a pension from the Mexican Social Security Institute (IMSS) or the Institute for Social Security and Services for State Workers (ISSSTE), in addition to providing written proof of not having paid contributions.
Then, with the more than 200 attendees showing hints of smiles, he said sarcastically:
“We have reached the extreme at which to be a beneficiary of a social program, we ask for a certificate of informal employment.”Immediately he took the opportunity to highlight the benefits of the tax reform saying that,
“We must change this. Social programs have to change their direction in order to become instigators of formal work in matters of housing, in matters of public health as in the case of Popular Insurance [which can be purchased by informal workers], and of course the programs that fight poverty themselves.”He added that the reform must strengthen the financial capacity of the federal and state governments, and in this way fulfill the obligations of infrastructure, public health, and public education, while having a simplified structure that helps combat the informal economy.
For Videgaray the eyes of the world are on Mexico, its economy, and its reforms. In fact, in his speech he emphasized:
“I believe that we can now recognize that from abroad, Mexico is viewed in a slightly different light than how it was seen just a few months ago. There is an interest and an enthusiasm for what is happening in Mexico and, to be more precise, for what could happen in Mexico...”He didn't miss the chance to praise the macroeconomic foundations of the country: low public debt, a healthy financial system, banks that are well-capitalized (with a rate of 16%), high international reserves (166 billion dollars), in addition to a responsible monetary policy, among other things.
However, he recognized that the country lags behind in economic growth and productivity. In numbers, the picture looks like this: while from 1981 to 2011 the gross domestic product of Chile rose to an average annual rate of 4.9%; in Ireland, 4.2%; and Korea, 6%; Mexico barely managed a lean growth of 2.4%.
In productivity, things are even worse, according to the Treasury Secretary, since in Chile the annual growth rate of productivity was 1.1%; in Ireland 1.9%, and in Korea, the country that had the most sustained growth, it was 2.4%; in Mexico it has gone down 0.7% in the last 30 years.
The official took the opportunity to point out the benefits to productivity of the educational, labor, telecommunications and economic competition reforms.
Then he defended the energy reform and disclosed to investors and executives the content of the financial reform which he considered
“will be, without a doubt, one of the fundamental elements in increasing the productivity of the Mexican economy, and above all, in democratizing its productivity.”Spanish original