Mexico’s Declining Oil Dependence – Thanks due to the Tax Department

Recently in Bloomberg Business it was discussed how, even though global oil prices have sent Mexico's currency to a record low and forced the nation to cut spending and raise interest rates, the country is actually less dependent on oil revenue than at any time in the past decade. While revenues from oil production have traditionally funded more than one third of the government’s spending, last year this dropped to less than 20 percent.

Why? Tax collection.

The government in the past few years has implemented a sweeping tax increase aimed at weaning the nation off its dependence on crude sales. Mexico raised the maximum income tax rate to 35 percent, increased the sales tax in states along the U.S. border and applied an 8 percent levy on junk food, among other measures. But mostly, as any business or taxpayer in Mexico will tell you, they’ve just gotten a lot better at collecting the taxes that should be paid and removing any means that in the past have allowed for people to avoid paying what they should be. They are so good at it they should consider exporting their expertise to countries like Greece, who really could use some assistance. Intake from non-oil sources surged last year from five percent in 2014 (and the average over the past ten years), to over 25%. Tax increases and collection were responsible for most of that big gain.