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Taxes might lessen savings generated by AMLO’s wage cuts

Taxes might lessen savings generated by AMLO’s wage cuts

21/07/2018
14:42
Antonio Hernández
Mexico City
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According to an analysis made by specialists, tax losses from wage cuts would be of 18,976 million

Wage cuts for high government officials which are to be implemented by the new federal government led by president-elect Andrés Manuel López Obrador will generate savings of 37,582 million pesos a year, though with a drop caused by income taxes (ISR).

According to an analysis made by specialists close to the new administration, the government’s high command, including department heads, joint directors, unit commissioners, senior officials, secretaries, and assistant secretaries, generates a gross payroll of 75,164 million pesos a year, with a tax retention of 27,000 million.

The document states that, should a 50% reduction be considered for the payroll of the government’s high command, general savings during the first year would rise to about 37,582 million pesos.

“However, this scenario contemplates a tax collection of 8,513 million pesos at an average rate of 22.7%, which means that tax losses due to wage cuts would be of 18,976 million,” the document reads.

Furthermore, 200 government positions could suffer adjustments in the Presidency, which according to the General Budget of Expenditures 2018, represents a payroll of 366,630,000 pesos.

After the wage cuts, bureaucrats from the institution would earn a total of MXN$183,315,000.

As for personal income taxes, all 200 positions in the Presidency contribute 106,103,000 pesos to the Ministry of Finance. After wage cuts, their contribution will be reduced to 45,635,000 pesos.

At the Ministry of the Interior, around 1,290 positions accumulate a payroll of 2,027 million pesos, which makes it the heaviest government department in terms of salary among high officials. The wage adjustment will reduce this amount to MXN$1,014 million, with a tax contribution of MXN$300,219,000.

“The 50% reduction on wage payments for high officials will have an effect on individual tax contributions. On the one hand, it will lower the taxable basis, and on the other, in reducing the taxable basis, the applicable tax rate will be smaller,” reads the specialists’ analysis.

In face of the adjustments to be made after wage cuts, and taking into account new calculations for tax reductions and the lawful payment of benefits, the document predicts that, although the wage cuts will ultimately reduce payroll costs, the adjustment will cause an increase in employee contributions for social security, as well as a reduction in tax collection.

“Salaries will be reduced and compacted, generating savings for public finances that will represent overall savings of 50% in the gross annual salaries. Tax collections will be reduced by 50% as well. Employee contributions for social security will increase 152% due to the increase in pledge savings,” the analysis added.
 

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