Economics: Pros and cons in the government’s 2022 revenue and spending plans
In our follow up to last week’s initial review of the López Obrador Administration’s 2022 budget package we delve deeper into its revenue and spending bills, which further confirm our earlier conclusion that the 2022 budget package suffers from many of the same weaknesses as its three predecessors.
Many observers had long assumed that behind the president’s 2018 campaign promise that he would not implement a fiscal reform during the first half of his administration was a plan to make the need for major midterm changes to the tax code inevitable. But despite the government's projecting a contraction of almost 35% in non tax sources of income next year, AMLO has instead announced that his formula of “republican austerity", fighting corruption and exerting increased pressure on big taxpayers along with plans to expand the tax base, has precluded the need for any tax hikes, much less the sweeping fiscal reform many have advised.
The finance ministry is projecting revenue from most tax categories will expand at the 4.1% pace that mirrors its moderately optimistic 2022 GDP growth forecast, which also sustains the claim that VAT receipts will expand a real 4.5%. However, AMLO's plans to employ essentially administrative measures to expand tax revenue for 2022 may fail to deliver the funds needed to cover the increased spending he proposes in this inertial revenue and spending budget, which fails to address the profound changes of the past two years in economic, social and health conditions, a defect that may accentuate the risks of imbalances moving forward.
Of particular note in this sense is what we might generously describe as a “moderate” overestimation of revenues. To the extent that the government implements the expanded spending it is proposing, such excessive optimism on the revenue front could propel the deficit and Public Sector Borrowing Requirements above projected levels, thereby adding to the pressure on public finances, with especially troubling implications from now until the final year of the current administration in 2024. It appears that some of the deficiencies that marred previous budgets on the level of specific budget functions have been corrected in the context of an expansion of total spending, although there remains the same prevalence of unfocused and unprofitable programs and projects.
Now read on...
Register to sample a report