Mexico Anticipated to Lose 2 Percent GDP Over Gas Subsidies

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According to the Mexican Center for Economic and Budgetary Research (CIEP), if the current tax subsidies provided to gasoline and diesel by the Special Tax on Production and Services (IEPS) are maintained, the Mexican economy will lose 554 billion pesos and experience 2.4 percent contraction in GDP in 2022 as a direct result of the policy.

Given the international surge in gas prices brought up by ongoing geopolitical events, Mexico’s price per barrel of gasoline more than doubled from $47.12 per barrel at the beginning of January, to $103.71 per barrel on March 3, prompting Mexico’s Secretariat of Finance (SHCP) to decree a “complimentary fiscal stimuli” and IEPS subsidies in the sector, which the CIEP says could have negative subsequent effects on gas and diesel collection.

Taking into consideration the worldwide demand for oil, the price of Mexico’s crude oil per barrel has also gone up and is anticipated to bring in the country 644 billion pesos in revenue in 2022. However, while IEPS collections go back into the stock market for public policy use, oil revenues go back into the coffers of state-owned oil company Petróleos Mexicanos (Pemex), leaving little revenue-generated funding for Mexico’s public policy projects.

“This causes the resources available to finance public policies to decrease, leaving the FEIP (Budget Revenue Stabilization Fund) at very low levels,” said the CEIP.

The center went on to say how the tax subsidy actually benefits Mexico’s higher-income population above all others, as they contribute a greater share to the IEPS collection on gasoline and diesel, and thus the policy could exacerbate Mexico’s already-stark wealth inequality.

“In a society as unequal as ours, the fact that there is a very clear difference in income means that the subsidy favors consumers with higher incomes more,” said energy sector expert ​Arturo Carranza.



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