Due to the fact that 82.7% of state revenues are transferred by the Federation, it is necessary for subnational governments to increase their fiscal space as an alternative, through taxes such as Tenure, Property and ecological, with high collection potential, to face to unavoidable expenses such as the payment of debt and pensions, specialists from the Center for Economic and Budgetary Research (CIEP) agreed.
When presenting the report Local public finances: towards a new fiscal coordination, they highlighted that only in 2020 the collection by the Tenure would have increased 74,000 million pesos.
“One of our findings is that by 2022 the states have 8,633 pesos per person and for a whole year to offer goods and services to the population; This figure shows a decrease of 27.5% with respect to the fiscal space that existed in 2018, so we see less opportunity on the part of the federal entities to offer public goods to their corresponding populations”, explained Alberto Pérez, Finance Coordinator Public in the CIEP.
Thus, the Ownership tax would be a relatively quick measure to implement in the entities; and the Predial, by strengthening aspects at the municipal level such as measures to update the cadastre in order to better collect the tax and fees charged for the possession of real estate; even a tax policy with a gender perspective, deepened Alejandra Macías, executive director of the CIEP.
Another of the analyzes that the center has carried out is fiscal measures for the energy transition, that is, using what already exists in the laws to be able to encourage investments in renewable energy or green energies, as well as the implementation of green taxes that several states such as Nuevo León, Yucatán and Zacatecas.
“However, the collection for these taxes is very low, since it is currently equivalent to 10.9 pesos per national capita (…) There could be considerable room for improvement so that other states can copy the successful experiences of Zacatecas, for example,” referred to ecological taxes.
“These are measures that could expand revenue, although increasing fiscal space not only requires collecting more or making more taxes, but also understanding how we are spending, how efficient distribution is,” added Alejandra Macías.
According to the report, the entity with the largest fiscal space is Colima, which has 13,876.3 pesos per person, while Chiapas is the least, with 1,883.6 pesos per person.
“Local strengthening measures are necessary (…) The solution is not to disperse more resources from the Federation to the states because that will accentuate the dependence they have on those resources, besides we do not know what they are spending it on”, emphasized the executive director of the CIEP.
Among the main implications, they highlight that the dependence on federal resources has negative effects on the generation of own income, on the transparency of spending and on the implementation of its public policy; the lack of accountability and transparency to citizens, as well as the sustainability of coordination and the fiscal system.
“As a country we have a responsibility to achieve the sustainable development goals, and the states fall far short of doing their part and being able to achieve these goals of the 2030 agenda,” the directive said.
Priorities
Once the fiscal space has been identified, the following observation focuses on the spending of the states, what their priorities are. The report showed that education, security, health, infrastructure and pension spending are the items in which they allocate most of their budget, so they have fewer resources to deal with the situation; on average, they have 1,687 pesos per person in a year to meet the rest of the population’s needs.
The first priority of the states is spending on education, as they allocate between 21.2 and 44.8% of their total budget; however, there are lags in this area, for example, in terms of terminal efficiency, of every 100 students who enter basic education, only 26 successfully complete higher education, also considering the educational lag that the pandemic brought.
It is followed by spending on security, with 96.8%, which comes from own income, while 3.2% from federal transfers.
In 2021, the states allocated, on average, 10.6% of their total spending to provide security (0.9% of their GDP); it has not yet been reflected in a decrease in the indicators.
The third priority is health, since at the national level 10.9% of spending is allocated to this item. The states provided between 3.9 and 17.8% of their total spending.
“1.1% of the national GDP is required to achieve National Health Coverage (…) From 2013 to 2020, federal contributions decreased 9.6%, so the 62.6% increase in own state resources did not compensate for the drop,” Alberto pointed out. Perez.
Regarding infrastructure, the specialist explained that public investment at both the federal and local levels shows signs of weakness. In 2021, 78.9% of the investment had a federal origin and the rest (21.1%) was financed with local resources.
“If we see what the Federation is spending on, specifically in infrastructure, we notice that it is mainly concentrated in the energy sector, so the states of Campeche and Tabasco are the ones that are currently receiving the most spending in this area,” he added.
While the fifth priority is spending on pensions. In 2021, spending was 18,000 million pesos higher than what was reported in the Public Account.
tax convention
Also, the specialists urged a new tax convention where budgets are made based on the needs of the populations, since “resources cannot be labeled the same for all entities.”
Alejandra Macías emphasized that the demographic, health, education, infrastructure or security needs in Nuevo León are not the same as in Chiapas.
For José Luis Clavellina, Research Director of the CIEP, “the treasuries of the federal entities reflect the heterogeneity that exists in the country, but some characteristics that have marked fiscal federalism in Mexico are an important centralizing bias, the high dependence on transfers federal authorities, the need for transparency and accountability, so the convention is essential to put on the table issues such as the limitation of resources with solutions such as tax reform.”
Likewise, he explained that the range of state debt per capita goes from 816 pesos (Puebla) to 12,078 (Coahuila), however, adding the municipal and institutional debt, the highest levels per capita are 15,827 pesos (Nuevo León).