It is common for different candidates in political campaigns to offer a large number of promises to different voters. On the one hand, some say that there will be free medicines and medical services for everyone, others promise public security and access to free education for everyone who gives them their vote, while the other assures that there will be high pensions for increasingly younger seniors. what campaigns become a competition of promises.
However, few tell us how the additional income required to fulfill all these promises will be obtained. Some argue that corruption will be eliminated, which has been shown over the years that it does not happen, while others assure that there will be no tax or price increases, which is also not true.
From the above, it is clear that the next government will have to face the problem of the so-called ‘structural fiscal deficit’, like the one Argentina has had in recent decades. This consists of some governments acquiring permanent spending commitments, as is happening in Mexico at this time, without defining or being clear about where the corresponding income will be obtained to be able to face these additional promises. Campaign commitments become future obligations that cannot be easily changed, due to the way they modify the functioning of economies. The result is consistently running a deficit over the next few years. This situation occurred in our country in the 70s and 80s and it took several years to reverse it.
The situation in Mexico is aggravated by the condition of the main source of income that the public sector had, which was Pemex. Its drop in production, as well as its recurring losses and greater debt, have meant that this company has ceased to be an asset of the government and has become a liability that must be maintained.
On the other hand, the decline in growth in Mexico is reflected in lower relative income for the government. Current investment and GDP per capita are lower than in 2018, which causes strong pressures on public finances. The fiscal deficit could be managed in recent years by the current government due to inertia and savings from previous years, but they no longer exist. The deficit planned for this year, close to 6 percent of GDP, seems manageable, but we must be aware that it already represents 20 percent of public spending and a quarter of government income, percentages that are high internationally.
The way out of this difficult environment is to achieve greater economic growth, which would make companies pay more taxes. In addition, they would generate a greater number of jobs, with which the government would obtain more income because the additional workers and employees would also pay consumption and income taxes.
History and international examples show us that the only way to obtain greater economic growth is through an increase in productive investment. Pharaonic projects without correct evaluation should not be considered investments, but rather should be classified as consumption. Investment is that expense that in turn generates greater income in the future.
The different countries that have achieved a significant increase in their growth and national income have relied on productive investment and the price system as an allocator of resources. For its part, public investment is allocated through feasibility studies, authorized by independent committees or councils, as was the case in Chile. On the other hand, the remainders of public companies are channeled to sovereign funds, as is the case in Norway, instead of being lost on projects without social profitability. There are solutions, but political will and social support are needed to carry them out.
