VZCZCXRO0492
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #7015/01 3542315
ZNR UUUUU ZZH
P 202315Z DEC 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 4659
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RHEHNSC/NSC WASHDC
RHMFIUU/CDR USSOUTHCOM MIAMI FL
RHMFIUU/CDR USNORTHCOM
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MEXICO 007015 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR A/S SHANNON 
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA 
STATE FOR EB/ESC MCMANUS AND IZZO 
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/ARUDMAN 
USDOC FOR ITS/TD/ENERGY DIVISION 
TREASURY FOR IA (ALICE FAIBISHENKO) 
DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH AND SLADISLAW 
STATE PASS TO USTR (EISSENSTAT/MELLE) 
STATE PASS TO FEDERAL RESERVE (CARLOS ARTETA) 
NSC FOR DAN FISK, CYNTHIA PENDLETON 
 
E.O. 12958: N/A 
TAGS: ECON ELAB EFIN PINR PGOV MX
SUBJECT: SENIOR CONGRESSIONAL STAFFER DISCUSSES MEXICAN 
BUDGET, FISCAL REFORM 
 
------------------------ 
Summary and Introduction 
------------------------ 
 
¶1. (SBU) Finance Secretary Agustin Carstens for weeks has 
highlighted publicly the need for fiscal reform in Mexico. 
At a recent conference in Mexico City, he said that Mexico 
needs to implement a broad fiscal reform to confront growing 
pension liabilities, rising payments on financed investment 
projects, over-reliance on income from the state-run oil 
company, and growing social spending needs.  He added that 
only Guatemala has a lower tax collection rate than Mexico in 
Latin America, and that without reforms, Mexico's fiscal 
deficit could reach 3 percent of GDP by 2012.  A top staffer 
of the Chamber of Deputies Finance Committee told econoffs 
that the legislature should start discussing the general 
outline of a fiscal reform package in January 2007.  He said 
that the words "fiscal reform" have been used for so long 
that people do not know exactly what they mean.  He stressed 
that fiscal reform will be a gradual and continuous process 
in Mexico.  He believed the most important goal of any fiscal 
reform should be increasing the number of taxpayers. 
Regarding the 2007 federal budget, he assured econoffs that 
the discriminatory 20-percent tax on beverages sweetened with 
anything other than cane sugar would be eliminated.  He said 
that Carstens is a "natural negotiator" who "sits down with 
everyone at the table as equals."  A short biographic note on 
the contact is included.  End Summary. 
 
--------------------------------------------- ------- 
Senior Staffer Calls for a "Realistic" Fiscal Reform 
--------------------------------------------- ------- 
 
¶2. (SBU) Econoffs on December 19 met with Jose Gildardo Lopez 
Tijerina (strictly protect), a top staffer (Secretario 
Tecnico) of the Chamber of Deputies Finance Committee, to 
discuss fiscal reform and the 2007 federal budget.  Lopez 
Tijerina began the discussion about fiscal reform by saying 
that he expects the legislature to start considering a 
general outline of a fiscal reform package in January 2007. 
That said, he noted how he and other Mexicans have heard the 
words "fiscal reform" for so long that no one knows exactly 
what they mean.  He opined that fiscal reform in Mexico will 
be a gradual, continuous process, not something that is done 
at all at once.  While stressing the need for fiscal reform, 
he said that any such reform has to be "realistic." 
 
¶3. (SBU) In his opinion, the most important goal of any 
fiscal reform should be increasing the number of taxpayers. 
He said that Mexico has 43 million economically active 
people, but that only 12 million pay taxes.  Lopez Tijerina 
said that one way to increase tax collection is to tax 
consumption -- as Calderon's 2007 budget proposal attempts to 
do with the new 5-percent tax on soft drinks.  Lopez Tijerina 
assured econoffs that, regardless of the final level of the 
soft drink tax, the discriminatory 20-percent tax on 
beverages sweetened with anything other than cane sugar would 
be repealed, in keeping with Mexico's WTO obligations.  He 
added that Mexico has to learn to compete in the global 
economy without trade barriers.  (Note: the lower house on 
December 18 approved the elimination of the discriminatory 
20-percent beverage tax when it ratified the income side of 
the federal budget package.  The Senate approved this bill on 
December 20, but reserved the right to make changes to 
certain parts of it.  End Note.) 
 
¶4. (SBU) Lopez Tijerina outlined other key aspects of a 
fiscal reform, such as the need to reduce corruption, 
particularly in customs, and to improve enforcement in order 
to reduce tax evasion -- something he said many Mexicans see 
as a game with no serious consequences.  He said Mexico also 
should review its special tax regimes and exemptions, noting 
 
MEXICO 00007015  002 OF 002 
 
 
that some industries no longer require tax exemptions to be 
profitable.  He stressed how Mexico needs to reduce its 
dependence on oil revenues, adding that oil-related products 
account for 37-38% of government revenues.  He believes that 
Mexico should review its "nationalistic approach" to the oil 
industry, implying that he favors at least a partial opening 
this sector to private investment.  Lopez Tijerina noted that 
current tax laws favor taxpayers over tax collection, and he 
emphasized how adjusting taxes is difficult because every 
time you touch a particular tax, "someone screams." 
 
------- 
Comment 
------- 
 
¶5. (SBU) Fiscal reform is indeed key to Mexico's ability to 
keep its fiscal house in order, as the government cannot 
continue relying on volatile oil revenues to make up for its 
poor performance collecting taxes.  Fiscal reform also will 
allow the government to dedicate more resources to such key 
issues as public security, poverty reduction, and education. 
 
¶6. (SBU) The smooth passage of the bill in the Chamber of 
Deputies is a positive, early signal that Calderon may have 
an easier time negotiating a broad fiscal reform with 
Congress than his predecessor.  Indeed, legislators from all 
political parties agreed to start examining a fiscal reform 
in January. 
 
---------------------------- 
Bio Note on Agustin Carstens 
---------------------------- 
 
¶7. (SBU) While discussing the quick approval of the income 
side of the federal budget in the Chamber of Deputies, Lopez 
Tijerina told econoffs that Finance Secretary Agustin 
Carstens is a "natural negotiator."  He appeared to respect 
how Carstens "sits down with everyone at the table as 
equals."  He also noted how the Finance Secretariat under 
Carstens' leadership was good at "coming to them" to explain 
its proposals. 
 
------------------------------- 
Bio Note on Jose Lopez Tijerina 
------------------------------- 
 
¶8. (U) Lopez Tijerina (PRI) is an academic, economist, and a 
specialist on fiscal issues from the National Autonomous 
University of Mexico.  He has written several books on fiscal 
issues, and previously was an advisor on the Finance 
Committee under Jorge Chavez Presa. 
 
¶9. (SBU) Lopez Tijerina told econoffs that he spent part of 
his childhood in San Antonio, Texas, and that the immigration 
issue was not nearly so controversial at that time.  He said 
that during a past visit to Chicago, he was struck by how the 
city's large Mexican population made it "feel like Mexico 
City."  He told econoffs that Mexico needs to create jobs to 
keep its citizens from moving to the U.S.  He added that, as 
someone working in the legislative branch, he fully agrees 
that Washington has every right to regulate immigration. 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity 
BASSETT