Business backlash | The Economist

IN A sign of Enrique Peña Nieto’s weakened stature since a law and order crisis erupted in September, Mexico’s business community will today directly challenge him over a grievance it has nurtured for more than a year. In a face-to-face meeting with the president, the Businessmen’s Coordinating Council, a lobby group, says it will ask him to roll back part of last year’s tax reform. It will also call on his government to cut wasteful spending.

Gerardo Gutiérrez Candiani, head of the country’s main business lobby, says the fiscal overhaul that raised taxes last year is the only one of Mr Peña’s reforms that the business community is against, blaming it for putting the brakes on economic growth this year. He said he would propose an immediate reversal of a reform that bars companies from using their investments to offset their tax liabilities. He would also ask for a staggered reduction in income taxes, and propose the reinstatement of other tax write-offs.

This call comes at a delicate time for Mexico. Public finances will eventually be hit by a decline in oil prices (they are currently hedged), and the fiscal deficit is already running near a fairly high 3.5% of GDP this year, a level which the government hopes to stick to in 2015. Mr Gutiérrez says the deficit should not be allowed to rise further. He believes some of his group’s tax-cut proposals would not harm revenues because they would spur growth. The government also has plenty of scope to cut wasteful public spending. According to a report this year part sponsored by the World Association of Newspapers, federal and state governments spend about $900m a year just on propaganda. It saturates the airwaves.

Luis Videgaray, the finance minister who stunned the business sector last year with the tax reform, now says he is open to cutting taxes. Until recently he had given short shrift to the private sector’s gripes, which have been mostly aired quietly to avoid upsetting other aspects of the reform agenda that big business supports. Even though Mr Gutiérrez hopes to increase pressure on the government over taxes, he appeared to remain loyally supportive of Mr Peña’s law-and-order strategy.

Political observers say the risk is that more vested interests affected by the reforms, such as telecommunications firms, broadcasters and banks, will attempt to capitalise on the government’s troubles and push for more leniency. Poll figures this week showed Mr Peña’s popularity had slumped since 43 students went missing in September and he was embroiled in a scandal involving his wife’s attempts to buy a house on credit from a government contractor. It is not just his left-wing foes on the streets who are attempting to take advantage of his troubles.