Upon assuming office, Mexican president-elect Claudia Sheinbaum will be tasked with upholding her promises of expanding social programs, despite inheriting a budget deficit that reached its highest level since the 1980s due to increased spending by her predecessor. With a deficit of 5.9% of GDP in 2024, up from 4.3% in previous years, Sheinbaum will need to carefully navigate between maintaining spending levels and safeguarding Mexico’s creditworthiness.
To address the financial challenges facing Mexico, experts suggest implementing a tax overhaul to boost government revenues. While Sheinbaum has stated that she has no plans to raise taxes, there is growing consensus among economists and analysts that some form of tax reform is necessary. Potential measures could include changes to property and car taxes, adjustments to corporate profit taxes, the introduction of “green taxes,” and royalties on state-owned oil company Pemex.
With Mexico’s tax revenue amounting to only 16.9% of GDP in 2022, well below the OECD average of 34%, there is a clear need to enhance the country’s tax collection system. The lackluster economic growth forecasted for the upcoming year further exacerbates the challenge of generating sufficient revenue to fund social programs and uphold fiscal discipline.
While the previous administration managed to increase tax revenue through measures such as combating evasion and resolving tax disputes with major corporations, experts caution that these one-time solutions are not sustainable in the long term. In order to address the budget conundrum facing Mexico, the new president will need to explore innovative strategies to enhance revenue collection and reduce the budget deficit.
As Mexico’s public finances face mounting pressures from various sources, Sheinbaum’s administration will need to prioritize finding viable solutions to sustainably fund social programs and maintain fiscal stability. From exploring new avenues for tax reform to improving tax collection efficiency, the incoming government must act decisively to address the country’s financial challenges.
The financial challenges awaiting Mexican president-elect Claudia Sheinbaum are significant and multifaceted. In order to fulfill her campaign promises and steer Mexico towards economic stability, she must confront the budget deficit dilemma, consider the necessity of tax reform, and explore innovative solutions to bolster government revenue. The road ahead will be challenging, but with strategic planning and decisive action, Mexico can overcome its financial obstacles and pave the way for a more prosperous future.