Mexico goes backwards in the collection of tax taxes

At the end of last year, the Organization for Economic Cooperation and Development (OECD) published a report called Revenue Statistics 2022: The impact of Covid-19 on OECD tax revenues. Prior to carrying out a detailed analysis of the document, it seemed logical to assume that the effects of the closure of economic activities in 2020 due to the pandemic would continue to affect the performance of tax revenues of member countries during 2021.

Apparently, the package of fiscal measures implemented for the recovery, among other variables, contributed to the improvement of the economies, as well as to the collection of taxes in 2021. For example, in most OECD member countries, registered an increase in tax collection (in 24 of the 36 nations). Thus, the average tax revenue in these countries during 2021 represented 34.1% of GDP, while a year ago the average had been 33.6 percent. As usual, the country that recorded the lowest proportion was Mexico, with 16.7% of GDP, while Denmark reported 46.9% of GDP, being the country with the highest collection.

It should be noted that the most significant increase compared to 2020 was observed in Norway (3.4 percentage points), followed by Chile (2.8 percentage points), while the countries with the largest losses were Hungary, Canada, Iceland, Turkey and Mexico. In the case of our country, the reduction occurred in practically all taxes, with the exception of the Value Added Tax (VAT), which had a slight increase of 0.1 percent.

In this sense, it is interesting to analyze what measures were implemented by the countries that managed to increase their tax revenues despite the complicated situation caused by the pandemic. According to the International Monetary Fund (IMF), Norway, for example, approved various actions aimed at strengthening strategic sectors of the economy, which implied spending estimated at 4.4% of GDP. Among the series of measures was a decrease in the reduced VAT rate from 12% to 6% and a subsidy for companies to rehire workers who were temporarily laid off. For its part, Chile adopted an extensive package of fiscal measures equivalent to 4.7% of GDP, which had several objectives, some of the main ones being to counteract unemployment and generate liquidity for companies.

In comparison, the measures that Mexico adopted were minor and were not evaluated, adjusted or increased according to the observed results. IMF data shows that some of these were as general as: 1) accelerating contracting processes and VAT refunds; 2) ensure that the Ministry of Health had sufficient resources to facilitate the purchase of medical equipment and materials; 3) streamline public spending contracts to ensure their full execution; 4) grant loans to companies and workers; among others. Adding up, even programs that were already operating previously (advance payments for programs for the elderly and people with some type of disability), the total cost of the measures did not exceed 0.7% of GDP during 2020.

An interesting fact is that most of the countries knew how to withdraw support (mainly for households and businesses) when it became apparent that their economies were resuming an adequate growth rate and unemployment was at pre-pandemic levels. In this sense, the collection waivers were only temporary, since from the beginning it was clear that they would address a specific situation.

In the case of Mexico, the results were not surprising. Since the beginning of the pandemic, various voices have emerged pointing out that the actions implemented were insufficient, that they did not attend to an in-depth diagnosis of the problem, that the experts were not listened to, nor did they look to see what the rest of the world was doing. These decisions, like many others in this six-year term, were centralized in the presidential figure and were affected by a political and ideological weight. The data presented here show that well-planned and designed public policy gives results. It is a pity that in Mexico this recipe is undervalued.