Four Mexico states call for new tax deal with López Obrador | Financial Times

Jude Webber in Mexico City YESTERDAY

The governors of four prosperous Mexican states have called on President Andrés

Manuel López Obrador to revise a four-decade-old tax pact in a rebuke to his

leadership just as coronavirus threatens a crisis in Latin America’s second-biggest


“We’ve had enough of abuses,” said Enrique Alfaro, governor of the western state of

Jalisco, days after Mexico’s powerful CCE business lobby slammed the president for

ignoring proposals to mitigate the Covid-19 impact on jobs, saying he alone would be

responsible if tragedy struck.

“Either [the fiscal pact] is revised and let’s hope we can do that or . . . those states

among us that contribute more to the economy will have to take a decision,” Mr Alfaro

said on Friday. “We’re trying not to break it . . . Let’s hope it doesn’t come to that.”

Edna Jaime, head of the México Evalúa think-tank, said Mr Alfaro and the governors

of the states of Nuevo Léon, Tamaulipas and Colima had “seized the opportunity to

challenge the president” after his coronavirus plan, announced a week ago, was widely criticised.

He is boosting social programmes and offering 1m loans to small businesses but

refuses to defer taxes or take on debt to fund a stimulus.

“The governors see that on the health and economic fronts, the president has no

proposals and no leadership and they are taking advantage of that to make themselves

heard,” Ms Jaime added.

Criticism of the 1978 fiscal pact, under which Mexico’s 32 states transfer sales and oil

taxes to the central government but receive nearly 90 per cent of their total income in

the form of transfers back to them, is not new.

Threats to rip up a deal that is a pillar of state finances, however, are. They come as

Mr López Obrador’s popularity is falling before key midterm elections next year.

Fuelling resentment, 27 states are slated to receive less money from central coffers in

the 2020 budget than last year, Ms Jaime said. The government has reassigned

spending to prioritise social programmes, handouts and controversial infrastructure

projects including a refinery and train project that Mr López Obrador says will

reactivate the economy after coronavirus.

Some business leaders in northern Mexico have called for a temporary refusal to pay

taxes while there is a lockdown. The CCE warns that the economy could shrink up to

10 per cent this year and 1m jobs could be lost because of the pandemic.

Mr López Obrador argues that taxpayers need to keep paying or he will lack cash to

help Mexico’s poor weather the storm. He has called on 15 big companies that he says

owe 50bn pesos ($2.1bn) in unpaid taxes to cough up.

Agustín Basave, head of the Movimiento Ciudadano (MC) party in Nuevo León,

Mexico’s industrial heartland, said 20 per cent of the states’ tax revenues should still

be shared out as now “but the president should no longer keep 80 per cent of our

money”. Mr Alfaro also belongs to MC; two of the governors are from the PAN and

PRI parties and one is independent.

One former top finance official said sales tax was collected along supply chains that

could span different states. “You’d need to put frontiers and customs,” he said. “It’s

like Brexit within Mexico . . . It will be very difficult to leave but you can threaten, and

with threats, negotiate something.”

That could include more stimulus or a tax holiday, said Duncan Wood at the Wilson

Center think-tank. “At a time like this, the president cannot risk an all-out war with

the business community or these governors.”