



In Mexico oil revenues benefit the wealthy-study





MEXICO CITY

Petroleumworld.com, May 17, 2012

Every Mexican would receive about $820 a year if the country's oil revenues were distributed equally across the population but a new study shows the country's wealthiest 10 percent indirectly pocket a far larger share.

The study, published this month by the United Kingdom's Oxford Institute for Energy Studies, said Mexico should push ahead with fiscal reforms to more equally distribute oil revenue if the country wants to combat poverty and boost social development.

The unequal distribution is due to Mexico's skewed tax system, with relatively easy taxation of big earners and overall the lowest tax take among Organisation for Economic Co-operation and Development countries at 18.7 percent of gross domestic product (GDP).

While state-owned oil monopoly Pemex, the world's No. 7 oil producer, funds about a third of the federal government's budget, the analysis by University of Sussex economist Paul Segal finds that once the money goes into government coffers it disproportionately benefits the wealthy.

"The country's oil revenues are effectively being used to lower taxes on the rich," Segal said.

He argues that the cushion the government gets from Pemex, which paid 876 billion Mexican pesos ($63.58 billion) in taxes last year, alleviates the pressure to raise needed revenue from Mexico's top earners.

The study recommends Mexico take policy steps to more equally distribute revenue earned from its 2.55 million barrels per day of crude production.

Mexico's finance ministry may have a comment regarding the study later on Wednesday, a spokeswoman said.

Because of the mismatch between the country's revenue base and its distribution of spending, the lowest 90 percent of households receive on average 12 percent less than their fair share of the nation's oil wealth, but the top 10 percent get about 109 percent more, Segal says.

To remedy that, he says Mexico should raise taxes on top earners and boost government spending.

Segal also suggests eliminating popular government fuel subsidies that mask the benefit of rising oil prices for an oil-exporting country like Mexico since citizens mainly focus on higher gas prices.

"Citizens who have a direct and visible stake in their oil industry may be more inclined to support reform that will increase production and thereby increase the direct benefits they receive from oil revenues," Segal writes.

Segal also highlights the example of Bolivia, which dedicates 30 percent of its gas revenues on a universal pension fund that citizens can directly connect to the country's natural resource wealth.

Mexico's dependence on oil revenue is a major issue in the July 1 presidential vote and the opposition front runner Enrique Pena Nieto has proposed overhauling Pemex to make it more efficient and profitable, while promising to tackle fiscal reform if he is elected.

But none of the candidates have raised a proposal to directly distribute Mexico's oil wealth to citizens.

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Story by David Alire Garcia from Reuters



Reuters | - Wed May 16, 2012 5:24pm EDT





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