The government of Mexican President Andrés Manuel López Obrador (AMLO) has already run out of money and that should concern us all. In a meeting of the President’s party in the Lower House of Congress, Finance Minister Arturo Herrera said that the rainy day funds left by previous administrations will run out this year. Herrera admitted that between 2020 and 2021the country will experience “its worse crisis since 1932”.
Despite the pandemic, Mexico’s sales tax (IVA) and income tax collection (ISR) increased during the first half of 2020. This is in part due to the virulent tax extortion campaign against private companies. During this period, the Mexican Tax Administration Service (SAT) carried out 25,000 audits. Total tax collection increased 177%, reaching the equivalent of US $12.7 billion. At a time when all governments around the world seek to provide emergency resources, given the forced economic paralysis, the Mexican government has opted to squeeze out private companies and waste taxpayer money.
Many companies that have designed legitimate tax strategies to reduce their tax burden preferred not litigate tax disputes, due to the possibility that their executives could end up following the dispute from prison. This was only possible after AMLO’s party in Congress passed legal reforms in 2019 equating tax fraud to organized crime charges, requiring preventive detention.
Criminal coercion, as the means for tax collection can be effective in the short term, but it will inhibit investment and entrepreneurship in the long run, while also promoting informality. When dealing with a government like AMLO’s, that every day harasses, insults, lies and accuses without proof those who oppose it, the concern that the law will be used arbitrarily is justified. Particularly, when laws designed to combat criminal organizations are used to subdue ordinary citizens considered “traitors” to AMLO’s so-called “Fourth Transformation” government. Cardinal judicial principles like presumption of innocence and due process are being deemed optional by this government. The judicial vendetta against former Minister of Social Development, Rosario Robles, and the freezing of assets for political reasons by Mexico’s Financial Intelligence Unit (FIU) are frightening examples.
Many businessmen in Mexico who have committed serious offenses by resorting to fake invoices to evade taxes must be punished with the full force of the law. However, giving supra-constitutional powers to the Mexican State is a dangerous invitation to abuse. The propensity of AMLO’s government to engage in excesses is guaranteed.
It is, therefore, urgent to ask where Mexico’s Supreme Court is. Its main function is precisely to limit the actions of the Executive Branch by preventing that its actions exceed the powers granted by the Constitution. The Supreme Court has yet to rule on half a dozen actions of unconstitutionality and nine constitutional controversies that have been filed. Some of these cases date to May 2019. I am particularly concerned about the idleness of Justice José Fernando Franco who is in charge of drafting the Supreme Courts’ opinion on the constitutional controversy surrounding the legal reforms allowing tax offenses to be considered threats against national security. The fact that Justice Franco has yet to present the full Supreme Court with his draft opinion on this case is causing severe economic damage to Mexico at a time when thousands are already suffering the ravages of a deep economic crisis caused by the government’s poor handling of the Covid-19 pandemic.
With these actions, Mexico gets closer every day to becoming a banana republic. This is further evidenced by the government’s calls to hold illegal referendums, including one to invite the Mexican people to decide whether or not to prosecute five former presidents just for the sake of it; a banana republic where the president does what he wants and violates citizens’ rights at will, where checks and balances to the Executive Branch have been painfully subdued.
The government has run out of money. It will continue to extort those unfortunate Mexicans who work in the formal economy and pay their taxes. In exchange for this, they will not receive any benefit in the form of better infrastructure, services, security, healthcare or public education. Taxpayers’ money will be squandered in absurd and useless gargantuan projects. The government will also throw one trillion Mexican pesos (the equivalent of US $ 47.6 billion) into Mexico’s state-owned oil company (Pemex) without generating any benefit.
The time has come for Mexico’s Supreme Court to wake up and do its duty.
* Jorge Suárez-Vélez is an economic and political analyst He is the author of The Coming Downturn of the World Economy (Random House 2011). A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition. Twitter: @jorgesuarezv