Mexican president proposes sweeping social program changes

MEXICO CITY – President Enrique Pena Nieto proposed sweeping changes to Mexico’s social programs Sunday, laying out a plan for the country’s first nationwide pensions and unemployment insurance to be financed by cutting tax loopholes for big business.

Pena Nieto’s proposal had been billed as solely an overhaul of the tax system, and it would cut most of the industry-specific tax loopholes written into Mexico’s tax codes over decades.

But in his announcement, Pena Nieto went much further. He proposed the country’s first carbon tax on fossil fuels used by industry, a levy often touted as a way to combat climate change. He also called for a tax on soft drinks, which he said is needed to combat Mexico’s high rate of obesity.

“The tax reform is a social policy reform,” Pena Nieto said in a speech at the presidential residence.

He said he would allow slight deficit spending in 2014 in an effort to spur the flagging economy, institute rules to lure the 60 percent of Mexicans who work in the “informal” sector into tax compliance, and create a stabilization fund to save excess tax revenues from boom years for use during lean times.

Some Mexican local governments have experimented with small supplementary payments to the unemployed and people older than 70, but the country as a whole has not had unemployment insurance and it now has a patchwork of pension plans.

Pena Nieto did not provide specifics of the social program plans or tax changes.

He proposed to institute a national capital-gains tax, although he also pledged to abolish the unpopular alternative minimum corporate tax as well as a tax on cash deposits at banks.

The proposed constitutional changes must be approved by both houses of congress and a majority of state legislatures.

Seeking to spur specific industries, Mexico over the decades has granted special benefits to companies.

“Those privileges that have no reason to exist will end,” Pena Nieto said, while predicting his plan would boost tax revenues by 1.4 percent of GDP in 2014 and 3 percent by 2018.

Mexico’s long-coddled big business sector appeared to bear the brunt of many of the changes. But industry isn’t likely to get much sympathy in a country with enormous income disparity; Mexico is home to the world’s richest man, telecom magnate Carlos Slim, while nearly half the population lives in poverty.