PERSPECTIVE ON MEXICO : Sales Tax to Test Coalition Congress

MEXICO CITY — Mexicans have needed no time at all to get used to a pluralistic Congress and the idea of having a say in public affairs. In a refreshing piece of public discourse, the country has ignited in a debate over what will surely be the new Congress’ first piece of business: a tax reduction, specifically a reduction in the hated sales tax, known as the IVA, which now stands at 15%. This has happened even though the new Congress, whose lower house, the Chamber of Deputies, is divided for the first time among three parties, won’t convene until September.

The debate over the IVA--impuesto al valor agregado--may seem mundane to outsiders. But these are momentous days in Mexico, and even something as picayune as a sales tax has in it much broader implications. The issue highlights the new realities in Mexican politics following the historic July 6 elections, in which the ruling Institutional Revolutionary Party (PRI) lost big.

Opposition party members say that the IVA should be a lever to pry open a larger discussion of federal spending priorities. Some have said that they’d really like to investigate for the first time how the government spends money and who benefits from it--a full governmental audit, in other words.

At the very least, coming out of all this should be the first real negotiations over a federal budget in modern Mexican history.

And no longer will a Mexican president be able to impose free-market reforms from above the way Ernesto Zedillo and Carlos Salinas de Gortari before him have done.

For two years, the IVA has symbolized the hardships of those reforms and the PRI’s arrogance in putting them in place.

Congress increased the sales tax from 10% to 15% in March 1995, as the country floundered in an excruciating recession brought on by the peso devaluation three months earlier.

Zedillo opted not to cut the massive federal government, which the PRI had come to control and use as a power base. Instead he proposed the tax increase, arguing that it was necessary to promote savings, fund jobs programs, reduce inflation and prevent budget deficits that would hinder a recovery.

These economic subtleties were lost on a population watching its buying power plunge again in the worst economic crisis in 20 years of such crises. Nevertheless, the PRI pushed the 50% increase in the tax through Congress. The only PRI member to vote against it was maverick Alejandro Rojas. His neighbors were so grateful that they brought a mariachi band to his house the next day to serenade him.

During the tumultuous vote, a photographer from the daily La Jornada took a picture that became the symbol of the sales tax issue and has stayed in the minds of Mexicans ever since. The shot was of Humberto Roque, the PRI leader in the Chamber of Deputies. He was only cheering the victory, yet his pose--arms bent at 90-degree angles, hands raised in fists--looked a lot like the gesture Mexicans use to describe the sex act. No one missed the implication.

Thus it has taken only a few weeks since the elections for the tax issue to become the hottest topic in Mexican politics. Proposals have been coming from all sides. The center-left Democratic Revolution Party (PRD) wants to reduce the tax to 10% but increase it to 20% for luxury items, such as caviar and golf club memberships. The center-right National Action Party (PAN) wants to cut the IVA and a couple of government agencies as well. Several economists have called instead for lowering the income tax, which they say would do more to encourage investment.

But the issue has gone beyond economics and is now political.

Zedillo said last week that he would not change his economic policy. The next day, Porfirio Munoz Ledo, the PRD’s new congressional leader, reminded him that the days when economic policy depended solely on the president ended July 6.

The issue offers the first opportunity for the PAN and PRD, which do not like each other, to work together. It also will show whether they can respond to a wide variety of interests in a responsible way, without throwing public finances into chaos.

Then again, the issue may redraw the Mexican political map, with, say, left-wing PRI members finding common cause with the PRD. Things are that fluid.

Whatever happens, the balance of power has shifted. The IVA debate proves that Mexico is a different country than it was a month ago.