Luis Rubio
Two have been the reactions to the announcement by government officials of budget cuts: some complain of the impact that these will exert on concrete programs, on public investment or on aggregate demand. Others criticize the cuts as too little, too late. If one observes, no one defends governmental spending for its virtues or for the opportunities that it could or should generate but rather for the costs that it entails. The budget, in any country, reflects a combination of political priorities and the correlation of forces. That correlation of forces in today’s Mexico produces an enormous fiscal weakness that reflects the institutional fragility of the political system as a whole.
There are three factors that aggravate fiscal fragility: first, the excessive discretionary powers possessed by the functionaries. When one listens to a European or U.S. Minister, what makes him or her different from a Mexican, Venezuelan or Brazilian one is that the former does not have the monies that can be applied at his discretion. In Mexico even third-level Ministers have significant funds that can be employed discretionally, a circumstance that is exacerbated in the case of the Ministry of Finance. The point is that although Congress has the power to approve the budget, its powers to oversee spending are very limited given the enormous clout of the executive, incalculably superior to that characterizing the U.S. Department of the Treasury or its equivalents in developed countries.
The second factor that distinguishes Mexico’s Treasury is the relatively low average fiscal burden. While some pay a lot, others pay nothing. The tax collection problem is due to circumstances solely explained by power relations or by indisposition, also deriving from political calculation. On the one hand, there are numberless sectors, activities or groups that are, de facto, excluded from tax obligations: unions, court favorites, political clienteles, organized crime, State governments, political parties, agriculture, and a long etcetera. On the other hand, when types of tax alternatives are considered that could be employed to increase tax revenue, no consideration is given to linking spending and tax collection, something that could only happen if state governments were to collect more taxes, which would make them accountable to voters.
The third factor, and the reason why the government’s fiscal situation is so fragile, is that the political system lost all legitimacy a long time ago. The reluctance to seek better ways of collecting taxes (which doesn’t necessarily imply raising the rates of existing taxes) derives from, at the end of the day, the perception, well earned, that tax collection is nothing more than mirror imaging of the government’s legitimacy. Some Swedes might prefer a fiscal structure distinct from the one they have to prioritize different objectives from the existing ones, but no one doubts the legitimacy of their government (whose tax rates, in some cases, are higher than 60%). The grounds of the latter lies in that the population can see their “taxes at work” in first-rate educative and health systems, an impeccable solicitousness with public funds and an economy that works. The point is that the fiscal powerlessness of the Mexican government is the product of its extremely poor performance: more money does not solve that dilemma, nor does it create better public services.
Although there have been moments of more fiscal strength, the frailty discerned during the last decades has occurred in parallel with the collapse of legitimacy since the seventies. The great good fortune of the government was that it discovered oil precisely during that period. It was from the seventies on that the promise of oil began to generate funds never before imagined, which allowed it to evade the underlying political problem: due to the governmental control of the oil resources, it seemed natural to employ the latter for political ends and for current expenditures rather than for investment.
Four decades later, the evidence is overwhelming: oil rents were wasted from day one, even before the oil began to flow in the second half of the seventies, and it never evolved into an instrument of long-term development. Billions of dollars passed through the governmental coffers leaving very little beyond that of clienteles dependent on patronage, unions turned into vested interests, the great wealth of politicians, governors consecrated to own private businesses and a country that, even though it certainly has improved, is far from having come to enjoy the good government indispensable for achieving that purpose. When the energy reform was being promoted there was much talk about Norway as a “model” to emulate. In both countries there is a great amount of oil; the difference in Norway has been the quality of its administration. It would have been better to count on that type of administration than on oil…
The big question now is whether we find ourselves in a cyclical or in a structural slump of oil prices. In the daily literature it is easy to find arguments in both directions: some who think that there will be a drop in supply, thus eventually strengthening oil prices; and then there are those who note such a pronounced reduction in alternative energy costs that we are at the threshold of a new energy era.
I do not know what really will look like in the future, but I do know that if the price of oil does not improve, the country will be obliged to confront its problem of essence: the issue of power, and that would entail a redefinition of political relations and the creation of effective checks and balances. Of course, the intermediate step of mediocrity is always possible, even probable, but the problem will not disappear simply out of pretending to cut expenditures in the short term only.
@lrubiof