towards a new fiscal coordination

On June 22, 2022, we presented the seventh flagship report of the Center for Economic and Budgetary Research (CIEP) dedicated to local public finances after having already presented five reports on the main spending items and a sixth on public revenue and possibility of having a new tax system.

On this occasion, the report aims to tell the story of the local finances of the 32 states of the Mexican Republic, stories that can be consulted on the microsite and the document available to the public.

Among the main findings we have that there is a high dependency of the states towards federalized spending, which can generate negative effects on the generation of their own income, on the transparency of spending and on the implementation of their public policies. As approximately half of federalized resources are earmarked, local governments have no incentives to design policies that take into account the dynamics of their population. For example, demographic change, epidemiological transition and climate change, which can explain the gap between spending and the results in the different subjects.

This also affects the scope of the SDGs. Mexico has committed itself within the framework of the 2030 Agenda to achieve the goals of the Objectives established in 2015; and for this, the participation of states and municipalities will be necessary, recognizing in which issues they could best contribute to the fulfillment of this commitment. Among these objectives is the reduction of poverty, attention to climate change and equality between men and women, to name a few.

While this investigation was being carried out, the lack of resources on the part of the states and municipalities to cover the expenses required to guarantee access to human rights and provide public services was recognized. However, it was also found that the expenditure that is already being made should improve in terms of targeting and relevance, since the results in learning, health and safety do not seem to improve in recent years, they have even deteriorated due to the effects of the pandemic. That is why the objective must be to increase the fiscal space to be able to respond to emergencies and/or generate innovations, by increasing own collection, but they must also improve the public policy strategies that currently exist to make spending more efficient.

Another important finding is the lack of accountability and transparency, not only towards the federal government, but also towards citizens in general. From the comparative analysis of the information that comes from the Public Accounts and Expenditure Budgets of the States, against data from requests for information, it is evident that the states do not include the complete information as stipulated by the Government Accounting Law and the Law of Financial Discipline. Therefore, follow-up actions and better implementation must be incorporated into a new fiscal coordination.

Finally, a new fiscal coordination must be a foundation to move towards a new fiscal system, through a comprehensive reform that includes the circumstances of the states and municipalities of our country.