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In Mexico, the poor get poorer

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The Central de Abastos wholesale market is the largest of its kind in the world, sprawling across an area half the size of Mexico City’s airport. On New Year’s Eve, however, it was still hard to move on account of the shoppers clogging up the kilometre-long grocery aisle, buying everything from pigs’ heads to sugar cane to grapes for that night’s festivities.

Outside it was another story. People without enough money to shop were sifting through piles of discoloured and discarded avocados and tomatoes, wrapping what was still edible in scraps of newspaper and furtively carrying them off for their own, more meagre supper.

For many of these Mexicans, life is getting harder. A fiscal reform that took effect on Jan. 1 introduces a number of new taxes that chiefly are aimed at the rich but that end up clobbering the poor. A value-added tax of 16 per cent was slapped on various forms of public transportation. In Mexico City the metro fare already had gone up before Christmas, a 66 per cent increase from three pesos (23 cents) to five pesos. As part of a government drive to fight obesity, the new levies also include a tax of one peso per litre on soft drinks and an eight-per-cent levy on some particularly calorific foods.

Such increases might look like small change. The central bank says that private-sector forecasters expect them to push up inflation only mildly in 2014, to 3.9 per cent. They form, however, part of a pattern of price hikes in recent years that have helped keep the number of poor in Mexico stubbornly high, at about 53 million in 2012, or 45.5 per cent of the population, according to Coneval, Mexico’s social-development council.

Coneval’s figures, running through the third quarter of 2013, show that the proportion of people who cannot afford the minimal amount of food required for basic well-being has risen by about 13 per cent nationwide since 2010, and by more than that in urban areas. The price of that minimum basket of food has risen by 21 per cent in that period, to the equivalent of slightly less than 40 pesos a day. The minimum wage in Mexico City is 67 pesos a day.

Higher food prices eat into everyone’s income, but they hit the poor particularly hard. According to INEGI, the national statistics agency, the bottom 50 per cent of the income scale spend almost half of what they earn on food. The top 10 per cent spend less than a quarter.

In theory, says Christopher Wilson of the Mexico Institute at the Wilson Center in Washington, the revenue from the new tax increases could go toward anti-poverty programs, helping to redress the balance. However, he says, "the fiscal reform has been much more focused on the income side rather than the spending side," and it remains an open question how the money will be spent.

Manuel, a grey-haired 54-year-old sifting through the rubbish at the wholesale market for scraps of cardboard to sell, and for tomatoes with which his wife can make soup, says that he receives no government-income support, though he does get health benefits. He says that the higher bus and metro fares mean that he has to spend longer hours each day scavenging. The new soft-drink tax means that he will switch from his favourite Pepsi-Cola to a cheaper brand, Red Cola.

If it all becomes too expensive, he says, he will give up cola and drink water. That, at least, would partially vindicate the government’s new "sin taxes," even if it gives Manuel even less to celebrate this new year.

— The Economist

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