Details

I have proposed that we establish a clear fiscal objective: raising Mexico’s public revenue to between 32% and 35% of GDP. That is still less than what the United States collects, and far below the levels of any European country. It would merely bring us close to countries such as Brazil or Chile. In other words, it is only a minimum threshold.

I arrive at this figure by setting targets for the areas that are indispensable to the country’s viability: national security and the administration of justice, healthcare, and education. These are spending levels that we know work in other countries.

Mexico should devote 4% of GDP to security, justice, and defense. Today we spend barely 1%. Healthcare should account for around 6% of GDP, compared with the less than 3% we devote to it today. Education should reach a similar level. It currently exceeds 3% only slightly, but should move toward 6%. If we add another 2% for the rest of government administration, we are talking about allocating 18% of GDP to these essential functions. Today, total programmable government spending amounts to only 20% of GDP.

I have, however, left out three major categories.

First, pensions and cash transfers—the distribution of cash that also serves as vote-buying—which already exceed 6% of GDP.

Second, energy, on which we spend 4% of GDP.

Third, housing, which absorbs another 1% of GDP.

Together, these categories account for 11 percentage points of GDP.

The first category continues to grow, partly because of demographic trends but increasingly because of political decisions. The other two, frankly, make little sense. There is no reason for the government to spend public resources on energy or housing, both of which can be provided by the private sector. The government could certainly implement programs to make housing finance more accessible, but that is a different matter. Government spending on energy is simply a legacy of the revolutionary myth.

To the 18% of GDP that should be devoted to what truly matters—security, education, and healthcare—we can add the 6% allocated to pensions. Although pension spending is still growing, it will eventually reach its peak and then begin to decline as demographic trends evolve and the transition to the Afore pension system progresses. For a target set at least ten years into the future, let us keep that 6% for now.

To those 24 percentage points, we must add debt service and transfers to state governments, which together amount to almost 8% of GDP.

Our target therefore comes to roughly 32% of GDP.

Today, public-sector revenues barely exceed 22% of GDP.

We are short by ten percentage points.

About four percentage points could be raised through property taxes over the next decade. Another two percentage points could come from oil revenues if private companies, rather than Pemex, were responsible for crude oil production, since private producers contribute more than twice as much revenue as Pemex. The remaining gap could be filled through ordinary taxation.

In other words, the objective is achievable.

But even this modest target implies a profound transformation in the way we think about Mexico. It means abandoning the government’s role in the energy sector, ending the policy of cash transfers, and requiring state and local governments to raise their own revenues.

Those three decisions would mean leaving behind the paternalistic, centralized system built upon the oil myth. They would mean accepting the definitive end of Cardenismo and of the Regime of the Revolution—bringing to a close a political cycle that has lasted nearly a century.

The goal is to focus on building a country that is secure, has a serious healthcare system, and offers a competitive education system. In other words, instead of trying once again to revive a failed political model—as this third attempt has demonstrated is impossible—we should commit ourselves to building a viable nation centered on strengthening its people.

These fiscal targets are indispensable, but they are not sufficient.

It is not enough simply to have the money; it must also be spent wisely.

In all three key areas—security, healthcare, and education—we face serious problems of organization and human capital. Without addressing those issues, additional funding would merely produce more waste. In each case, however, we already have experience with better practices that could be recovered.

That means these goals are achievable.

But, as always, the devil is in the details—and those details will have to be carefully worked through.