VZCZCXRO9718
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #4552/01 2362201
ZNR UUUUU ZZH
P 242201Z AUG 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 8581
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
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MEXICO 004552 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR A/S SHANNON 
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA, AND DRL/AWH 
STATE FOR EB/ESC MCMANUS AND IZZO 
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GERI WORD 
USDOC FOR ITS/TD/ENERGY DIVISION 
TREASURY FOR IA (ALICE FAIBISHENKO) 
DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH AND ALOCKWOOD 
NSC FOR RICHARD MILES, DAN FISK 
STATE PASS TO USTR (EISSENSTAT/MELLE) 
STATE PASS TO FEDERAL RESERVE (CARLOS ARTETA) 
 
E.O. 12958: N/A 
TAGS: ECON ELAB EFIN PINR PGOV MX
SUBJECT: MEXICO'S 2008 BUDGET PROCESS 
 
REF: MEXICO 4015 
 
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Summary 
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¶1. (SBU) The Calderon administration is required to submit 
its 2008 budget proposal to Congress by September 8.  The 
Chamber of Deputies has until October 20 to approve the 
budget,s revenue section and send it to the Senate, which 
has until October 31 to ratify it.  The Chamber must pass the 
expenditures section by November 15.  By law, the oil price 
used in budget calculations is determined by a pre-set 
formula, and the budget must be balanced.  The government 
still hopes that fiscal reform will be approved in time to 
incorporate it into the 2008 budget.  Since the approval of 
fiscal reform will likely run up against the 
administration,s September 8 deadline, it is preparing 
different budget proposals based on the passage, or not, of 
fiscal reform.  Post still believes that fiscal reform will 
be approved in time to be incorporated into the 2008 budget. 
End Summary. 
 
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The Budget Process and Timeline 
------------------------------- 
 
¶2. (U) Mexico's budget package is divided into two main 
parts: a "Revenue Law" and an "Expenditure Law."  The Revenue 
Law, which sets the overall spending cap, must be approved by 
both houses of Congress.  The Expenditure Law, however, is 
only reviewed and approved by the Chamber of Deputies. 
 
¶3. (U) The timeline for the 2008 budget is as follows. 
President Calderon must submit a federal budget proposal to 
the Chamber of Deputies by September 8, 2007.  The Chamber 
has until October 20 to approve the budget's revenue section 
and send it to the Senate, which has until October 31 to 
ratify it.  The Chamber must pass the Expenditures Law by 
November 15.  Once Congress approves the budget package, the 
legislative process is over.  The President has 20 days to 
publish the budget in the Official Gazette after 
congressional approval.  The Executive does not have veto 
power over the budget, but it is responsible for executing 
the budget through the Finance Secretariat (Hacienda). 
 
¶4. (U) Under the Budget and Fiscal Responsibility Law, the 
price of oil used in budget calculations is set according to 
a formula that is based on the average price of Mexican crude 
oil for the last ten years and the forecasted market price 
for the next four years.  The law also specifies that the 
budget must be balanced.  (Note: the GOM does not use the 
Public Sector Borrowing Requirement statistic for calculating 
the budget balance, but rather a definition that excludes 
significant public borrowing.  End Note.)  If Congress 
approves more expenditures than are in the President's budget 
proposal, it must identify a revenue source to offset the 
extra spending.  A deficit is only allowed in extraordinary 
situations, such as natural disasters, and will only be 
approved if there is a proposal that specifies revenue 
sources to cover the extra spending and a timetable for 
returning to a balanced budget. 
 
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Fiscal Reform Up Against Budget Deadline 
---------------------------------------- 
 
¶5. (SBU) A complicating factor for the 2008 budget process is 
fiscal reform.  The Calderon government in June proposed a 
tax reform package that would increase the country's meager 
tax intake from approximately 10% of GDP to 13% by 2012, but 
the proposal has not yet been approved by Congress.  The 
government had initially hoped to have the initiative 
 
MEXICO 00004552  002 OF 002 
 
 
approved during a special session of Congress this month so 
it could incorporate fiscal reform into the budget proposal 
due September 8.  However, in an August 21 meeting with 
visiting U.S. Congressman Roy Blunt (R-Missouri), 
Undersecretary of Finance Alejandro Werner (strictly protect) 
said that negotiations on fiscal reform would continue into 
September.  Werner remained hopeful that the reform would be 
approved by September 8.  He said that the government is 
working two budget proposals: one that assumes fiscal reform 
is passed and another that assumes the initiative fails. 
This tracks with what another Hacienda official told Econoff 
on July 30 (reftel).  Post has heard separately that Hacienda 
is also preparing for a situation where fiscal reform is 
approved, but the reform does not increase tax collection by 
as much as the government's proposal. 
 
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Comment 
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¶6. (SBU) The Calderon administration has been vocal in its 
calls for the passage of fiscal reform, noting that 
additional tax revenues are needed for it to implement its 
planned infrastructure and social projects.  In particular, 
the government has said that without fiscal reform, the 
private sector would have to fund a greater percentage of the 
infrastructure projects presented in Calderon's National 
Infrastructure Program, or risk returning to the status quo 
of limited investment in this area.  Post still believes that 
fiscal reform will be approved in time to be incorporated 
into the 2008 budget (i.e. before the October 20 deadline for 
the Revenue Law). 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity and the North American 
Partnership Blog at http://www.intelink.gov/communities/state/nap / 
GARZA