Public Finances Indicate Possible Need for Tax Reform

A tax reform might be on the horizon for the upcoming administration. According to the Mexican Institute for Competitiveness (IMCO), based on data from the Treasury, the public sector’s budget deficit in 2023 stood at 3.4% of GDP, with the primary deficit at 0.1% of GDP.

Additionally, the analysis revealed that by the end of 2023, the Historical Balance of the Financial Requirements of the Public Sector (SHRFSP) marked a 9.6% increase compared to December 2018. This increase contributed to the public debt increasing 21.5% from 2022, constituting 12.9% of total public sector spending.

According to online magazine IDC, last year's deficit required financing through public debt, as highlighted by Luis Pérez de Acha, Partner, Pérez de Acha and Ibarra de Rueda. Pérez de Acha emphasized that this, coupled with the debt planned for 2024, poses a significant challenge for the incoming president, accounting for 10% of the country’s GDP.

In response to the fiscal situation, Pérez de Acha suggested that the future president would likely need to implement a substantial tax reform, alongside fiscal reforms. Notably, 90% of Mexico's public sector debt consists of internal debt (Cetes and similar instruments), indicating the urgency for a reform.

Furthermore, Pérez de Acha underscored the issue of tax collection, which fell below the programmed levels outlined in the 2023 Income Law. Given the financial data from 2023, there is a strong possibility that the next government will prioritize a tax reform to address Mexico's fiscal challenges effectively.