Strengthening Fiscal Federalism in Mexico

In North America, specifically the United States and Canada, there are subnational jurisdictions, namely states or federative entities, and we can then add the municipal case. Regarding revenue collection, the most relevant responsibility lies with the central government. Since the 1980s, with the creation of the National Fiscal Coordination System, federative entities signed an Accession Agreement, whereby they committed to suspend—i.e., not to use—powers that, not being exclusively granted to the central or federal government by the Constitution, could be used by the states, such as the ISR or VAT. In exchange, they receive participations, i.e., a percentage of the collection that the federal level—today directly the SAT—would make. At that time, the Federal District, being a federal dependency, did not join via the Agreement, but through an Administrative Collaboration Agreement in Fiscal Matters. Today, Mexico City is a federative entity with a centralized tax regime, and the central government collects taxes. Mexico City collects a significant portion of its own revenues, over 40 percent. Every federal country has three levels of government, as is the case in Mexico and, in Latin America: Argentina, Brazil, and Colombia. In the states, particularly in the northern part of the country, own-source revenue has reached up to 20 percent, with Nuevo León standing out; but in the south, own-source collection has been more limited. Over time, many entities within the Republic have also made a collection effort; however, they will have to make an even greater one. An entity distinguished by its own nature, such as Quintana Roo, has constantly increased its tax collection, as have other states like Querétaro and others. On the other hand, as I have pointed out for some years, there is the correct and transparent exercise of spending, and it is very clear in the Constitution and the Law of Financial Discipline what the corresponding powers are. Apparently, it is also time for the federative entities to strengthen their collection powers, to review the Law of Financial Discipline—which has not been updated for many years—and for the municipalities to be more proactive as the fundamental order of our federal system. The National Fiscal Coordination System has been a substantive part of the country's economic development, and for the same reason, it must be strengthened through its own powers, without forgetting that the municipality is the cradle of the country's development, even in states like Oaxaca, where the system of uses and customs has resulted in, of the state's 570 municipalities, the majority being of uses and customs, which has strengthened municipal participation and transparency before citizens. There have been errors in the past, such as when many entities eliminated the vehicle ownership tax—which was administered by the states, with 20% corresponding to the municipalities—for reasons of purely political expediency, with unfortunate results in certain municipalities. It is, then, relevant to strengthen our federalism by supporting and caring for the powers of the three levels of government.