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25 October 2010

Mexico Compromises On Income Budget

The income portion of the Mexican government's 2011 budget has been approved by the lower house of congress but with some additional taxes and more lax deficit limits.

The opposition Institutional Revolutionary Party (PRI), which nevertheless has the most seats in congress, agreed to give up its demand for a 1% cut in VAT, but wished instead to bolster disaster fund assistance to provinces affected by storms. To this end, a compromise was reached which involved the raising of tax on cigarettes and a 25% tax on “energy drinks” such as Red Bull. Other taxes remain unchanged.

The additional spending approved at MXN61bn (USD4.9bn) is expected to lead to an overall deficit of 0.5% of GDP, compared to the 0.3% originally proposed by Calderon’s government.

The bill is set for approval by the upper house before October 30 and the lower house must approve the spending portion of the 2011 budget by November 15.

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