Public Finance and Social Protection System Reforms in Mexico: Part I

Abstract

Mexico needs a proposal to integrate reforms into the social protection system as an indispensable factor for social cohesion with holistic fiscal reforms that create and nurture viability in the long term and improve the country's competitiveness. There is also a need for reforms that seek to break through the prevailing economic stagnation and provide the nation with medium-and long-term development opportunities. Specifically, it needs a proposal that addresses the overwhelming need to formalize a new social contract based on justice and sustained by economic growth that allows Mexico's democracy to work for all of its residents. This article seeks to conduct an exercise that is rarely attempted in Mexico: establish achievable short-and medium-term goals for universal social protection tied to revenue sources that provide long-term viability and sustainability.México necesita una propuesta que integre reformas al sistema de protección social como un factor indispensable para la cohesión social, con una reforma fiscal holística que fomente y cree viabilidad a largo plazo y mejore la competitividad del país. También se necesitan reformas que busquen superar el actual estancamiento económico y proporcionar a la nación oportunidades para el desarrollo a mediano y largo plazo. En específico, se necesita una propuesta que aborde la necesidad abrumadora de formalizar un nuevo contrato social basado en la justicia y sostenido por un crecimiento económico que permita que la democracia funcione para todos los residentes mexicanos. Este documento busca llevar a cabo un ejercicio que pocas veces se intenta en México y que consiste en establecer metas alcanzables para la protección social a corto y largo plazo, pero que las ligue con fuentes de ingresos que proporcionen una viabilidad y una sostenibilidad a largo plazo. Background Context S lightly over a decade since the beginning of the alternation of power at the federal executive level for the first time in modern Mexican political Latin American Policy-Volume 3, Number 2-Pages 272-336

Public Finance and Social Protection System Reforms in Mexico: Part II

“…As discussed in Chávez et al (), the additional resources that would be obtained through complete public finance reform would be higher than those reported in Table (6% vs. 3.4% of GDP), and policy should focus on promoting growth, criminal process reform, and the macroeconomic viability of public finances.…”

“…As discussed in Chávez et al (2012), the additional resources that would be obtained through complete public finance reform would be higher than those reported in Table 2 (6% vs. 3.4% of GDP), and policy should focus on promoting growth, criminal process reform, and the macroeconomic viability of public finances. Based on the concentration of wealth in Mexico, this form of financing would also make an argument for redistribution, where the increase in public spending would largely compensate for the regressive effect of the consumption tax (taxes would return to the people through the new universal minimum package of social protection).…”

“…Although enrollment in these programs has significantly improved, almost one third of the population does not receive any type of social benefit. As described in Chávez, Hernández, López‐Calva, and CEEY () regarding public finance reform, trying to increase the coverage of social benefits using this dual system presents only insufficient and financially unsustainable perspectives.…”

“…For the Mexican state to guarantee a minimum level of rights for the entire population, as previously described, it is necessary to have sufficient financial resources that arise from sustainable, long‐term sources, but there is evidence suggesting that, over the past 10 years of expanded social spending in Mexico, fiscal efforts have been insufficient to finance the significant budgetary increases of social programs and other government expenses. To a significant degree, additional oil profits generated over the period in question have financed these programs, along with the reduction in the budgetary deficit, to the detriment of public investment (Chávez, Hernández, López‐Calva, & CEEY, ).…”

“…In the face of the formidable challenge of increasing social benefit coverage to the entire population (rather than only the working population) in a manner that is sustainable over time and does not compromise the consumption and well‐being of future generations, this document supports a complete social protection system consisting of the universal access minimum benefits described above that is completely financed by public resources derived from general consumption taxes (particularly, the elimination of special legal exemptions in the value‐added tax—VAT). This plan would be progressive for income and earnings for all inhabitants of the country and represent a significant reduction in the remaining general subsidies, such as the energy subsidy (Chávez et al, ). The implementation of this model would allow for the generation of the financial resources necessary to fund the new system completely and contribute to improving the asset balance of public finances, as described in Chávez et al ().…”