On Saturday, President Felipe Calderón announced a cabinet reshuffle, with an eye to the 2012 election. Juan Molinar Horcasitas, one of Calderón’s closest political advisers, resigned as Secretary of Communications and Transportation in order “to participate intensively in political-party work that is important for the life of the country” according to the President’s statement. He is being replaced by Dionisio Pérez-Jácome, who has been Undersecretary of Finance for Expenditures and who also briefly served as presidential chief of staff.
Molinar’s record as head of SCT was not stellar. The ministry continued to be bedeviled by technical problems in executing the government’s ambitious transportation infrastructure program. And little headway was made in the area of telecommunications policy, where the award of a large bloc of wireless spectrum to a Nextel-Televisa consortium was drowned in a sea of lawsuits and the withdrawal of Televisa.
The President also named congressman Roberto Gil Zuarth as his new private secretary, replacing Luis Felipe Bravo Mena. Gil Zuarth had been widely seen as the President’s preferred candidate to take over the PAN in the party’s recent election of a new leader (an election won by Senator Gustavo Madero). Bravo Mena is returning to the private sector.
As noted by El Universal’s Bajo Reserva column: “Inside and outside his party, the PAN, the reading [of the changes] was the same: it is a signal that Calderón is not packing his bags and ready to give up power, perhaps to a political adversary. [The appointments] announced yesterday were a demonstration that he will give battle to everyone, including those within his own party.”
Georgina Kessel moves from Secretary of Energy to the President of Banobras, the development bank. She replaces Alonso García Tamés, who returns to the private sector.
José Antonio Meade, Undersecretary of Finance, becomes the new Secretary of Energy. Meade becomes the last of the senior level technocratic ‘old guard’ of the Ministry of Finance to leave, a process that started with the appointment of Ernesto Cordero as Finance Secretary in December 2009.
On today’s legal deadline, the Chamber of Deputies appears set to approve the expenditure law for 2011. The Finance Commission unanimously approved the expenditure proposal at 2am. The President’s request for increases for the security agencies, including the funds to create the unified police forces, were approved. The principal cause of delay in approving the expenditure package had been negotiations to allocate funds for highway construction between the different states. (Excelsior 11/15)
In a rare use of his veto power, President Felipe Calderón vetoed a change in corporate law that would have allowed for single shareholder corporate entitities. The President vetoed the measure not because he opposed the substance, but because the legislation that emerged from Congress created a new category of entity, with special rules, rather than just eliminating the requirement for more than one shareholder. “The Federal Executive power under my command has stated that it is in favor of a minimal regulation that gives agility to the mechanisms for setting up and operating companies; the legislation does not do this,” he said in his veto statement. The measure was originally submitted to Congress in March 2008 by the PAN and PRI and was quickly passed by the Senate, but has languished and been modified in the Chamber of Deputies. Congress can change the draft law based on the President’s observations, let the veto stand, or try to override the veto with a two-thirds majority. (Reforma 11/9)
Supreme Court Minister Olga Sánchez Cordero ordered the suspension of the presidential decree issued on Sept. 2 that would have accelerated the transition to digital TV in Mexico to 2015 from 2021. Sánchez was acting on a petition by the Congress to rule on the constitutional issues. Speaking at a business forum, President Calderón said, “We are pushing forward, with determination, and despite the resistance, for the transition to digital television in Mexico, in order to … give higher quality and more options to consumers.” The full court could take many months before ruling on the substance of the constitutional controversy. (Reforma 10/26)
As expected, the Chamber of Deputies voted to approve the Revenue Law leaving the value added tax rate unchanged at 16%, by a vote of 354-81-4. The PRD, PT and Converagencia voted against, as did a handful of dissident PRIistas. The Chamber voted a Ps. 7 per pack increase in the cigarette tax, and a 25% tax on energy drinks. At the same time, the Chamber increased the estimated growth rate of the economy and price of oil, and the target deficit (to 0.5% of GDP), which will increase the total revenue pie by Ps. 60 billion pesos. The package now goes to the Senate for final approval.(Universal 10/20)
By a vote of 85-8, the Senate approved the Law on Public-Private Partnerships that had been proposed by the Executive last November and has been pending a vote since April. The law modernizes the framework for so-called PPPs, whereby the private sector provides services under long term concessions that are normally considered to be public sector responsibilities, such as operating tollroads, ports, and municipal water systems. While Mexico has undertaken a large number of PPPs since the beginning of the Calderón government, participants have been looking for modernization of the legal framework. The law now goes to the Chamber of Deputies. (Reforma 10/12)
A federal judge declared the government’s reform of the income tax law last year that created new corporate fiscal consolidation rules unconstitutional. The judge was acting on suits filed by many of the country’s largest corporations that objected to the change in the Income Tax Law that limited their ability to use tax losses from one subsidiary to offset taxable income from another. Previously, companies had 10 years to use tax losses; last year’s measure reduced this to five. The judge held that the changes violated the constitutional protection against retroactive law. The case now goes to the Supreme Court, which is not expected to take up the case until mid-2011. The judge’s decision does not affect the obligation of the companies to continue paying taxes under the new rules. (Reforma 10/12)
The PRI in Congress continues to press for a reduction in the value added tax rate from 16% to 15%. The PRI delegation in the Chamber is seeking to offset the loss of revenue by raising the estimated growth of the economy in 2011, increasing the forecast price of oil, and also allowing for a larger deficit. Senator Rubén Camarillo of the PAN said the tax reduction was merely an electoral ploy. Meanwhile, the PAN noted that a 12% VAT tax rate was viable if all the current exemptions (except for a limited basket of basic foods and medicines) and special regimes were eliminated. In its weekly bulletin, the Ministry of Finance warned that a cut in taxes in the current environment could put public finances at risk, leading to excessive indebtedness or cuts in vital investment spending. (Reforma 9/27, Excelsior 9/22, Hacienda 9/27)
In a formal appearance before Congress to defend the Government’s 2011 Budget, Finance Minister Ernesto Cordero warned of a repeat of past economic crises if the PRI proposal to cut value added tax rates passed. “To reduce revenues while at the same time increasing the deficit, would create the risk of falling into an unsustainable debt situation that could cause another crisis of internal origin, such as occurred in 1976, 1982 and 1986,” he said. “To weaken the tax base in this moment would be irresponsible, at the time when we are emerging from the need to have to borrow. It is inconsistent when we are ending the need to borrow to lower taxes. Never in the history of the country has a reduction in tax rates increased tax revenues.”(Universal 9/15)
Restrictions on cash deposits by companies and organizations went into effect, as part of the Government’s efforts to combat money laundering; restrictions on deposits by individuals became effective in June. Under the new rules, companies operating in the frontier and tourist areas will be limited to depositing US$7,000 in cash per month. In order to address concerns about hurting tourist businesses, the Ministry of Finance also created a mechanism for companies “that have an economic justification for carrying out cash transactions in dollars” to deposit up to an additional US$100 per sale transaction. (Hacienda 9/12, Excelsior 9/13)