A Clear Goal

This column has repeatedly argued that the collapse of Obradorismo, the Fourth Transformation, or whatever one chooses to call the group that came to power eight years ago, is imminent. Like its predecessors, it has turned out to be a major failure. The same happened with Cardenismo (1935–1946) and Echeverrismo (1970–1982), each of which lasted two presidential terms. Unfortunately, this latest experiment appears unlikely to make it that far, forcing the country to seek extraordinary solutions.

In all three cases, separated by roughly three decades, what ultimately defeated these movements was not the opposition but reality—economic reality, but political reality as well. The first time, it was possible to change course without much upheaval. The second time, the transition came through a profound crisis that consumed most of an additional six-year term. This time, I have no idea how it will unfold. But we must begin thinking about the way out, and that is what I would like to focus on over the coming days.

As in maze puzzles, where one must find a path from the entrance to the exit, it is often easier to begin from the end and work backward to identify the best route. I believe that approach can help us now, especially because we still do not know exactly where our starting point will be.

It should be obvious that Mexico faces a critical situation in its public finances, but it is precisely there that we must define our objective—the goal that will make the country viable. Not a target for any particular year, but something that can realistically be achieved over the course of a decade and that lays the foundations for a sustainable nation.

Mexico has lived with deeply flawed public finances for half a century. By 1965, it was already clear that the government was not collecting enough revenue to fulfill its basic responsibilities—from national security and the administration of justice to providing the goods and services that form the basis of a fairer and more competitive country, namely education and healthcare.

Nothing was done at the time, and the country experienced fiscal crises in 1976, 1982, 1986, and 1994, several of them occurring simultaneously with balance-of-payments crises. We came close to facing something similar again in 2016, and the attempt to avoid it—the gasolinazo (fuel price liberalization)—helped pave the way for López Obrador’s return. Today, we once again find ourselves in a critical situation, but with no obvious way out.

The objective that I believe is both feasible and desirable is to raise public revenue to somewhere between 32% and 35% of GDP. That would allow the government to fulfill its essential functions, which I mentioned earlier.

Today, many people argue that the state should be much smaller, and some even claim that all taxation is theft. That idea makes little sense, but it is fashionable.

I will explain on Wednesday how I arrive at that figure, since there is not enough space to do so here, but let me offer a preview.

Current government revenues amount to roughly 22% of GDP (a couple of percentage points more if contributions to the IMSS are included). More than 80% of all tax revenue is collected by the federal government, which then redistributes funds to state and municipal governments.

On the spending side, Mexico devotes almost as much public money to energy as it does to education—an obvious absurdity. The former can be left to the private sector, freeing up resources for genuine investment in human capital.

The largest expenditure, however, is pensions, now further expanded by cash transfers distributed to secure political support.

Mistakes of this kind make sound public finances impossible. They also prevent the construction of a country that is both fair and competitive.

As Emilio Tuero once sang, “Money is not life; it is merely vanity.”

This proposal for a fiscal target is only one component of the country we should be imagining, but it is an indispensable one.

The details, the other components, and the path to achieving them will be the subject of this column—perhaps for quite some time.