Oil decline boosts pressure for Mexico tax reform

MEXICO CITY (Reuters) – Mexico is under growing pressure to ratchet up its paltry tax take as sliding oil revenues threaten a pillar of public finance that is central to its efforts to claw back from a deep recession.

Mexico, which funds about a third of its budget from crude oil sales, has put off the tough choice of hiking taxes in recent years as sky-high world oil prices masked a steady decline in crude output and a grim prognosis for 2010 production.

But with oil prices now well below their highs, sliding output has caught up with Mexico as it wrestles with its worst economic slump since its mid-1990s Tequila crisis.

Standard & Poor’s jolted the already battered peso this month when it revised its outlook for Mexico’s credit rating to negative — the first step toward a downgrade. It cited an urgent need for a fiscal reform and doubts that the government has the political will to pull it off.

Once mid-term congressional elections are through in early July, the ruling conservatives are expected to push an intense debate over a tax overhaul in tandem with talks for the 2010 budget.

Reuters