Mexico’s Paradox of Reform

Sometimes no reform is better than the wrong type of reform. That seems to be the case in Mexico, which recently passed new tax and electoral laws – but not the ones the country needs.

While tax reform was high on President Felipe Calderón’s agenda during last year’s presidential campaign, electoral reform was not. Instead, it has been imposed upon him by a strange and extreme version of political horse-trading.

Opposition legislators wanted electoral reform, but no new taxes; the administration wanted more revenues, but no new election laws. Both sides got part of what they wanted, and Mexico got the short end of the stick.

An alternative minimum tax was established, along with a slight increase in gasoline taxes, but both were so watered down that they barely add up to anything. According to the government’s own figures, they equal just 1% of GDP – a pathetic increase in an economy with one of Latin America’s lowest tax takes.