Mexico. According to the latest information, half of the population already has access to connectivity. However, its growth rate has slowed down and, consequently, distances in time the feasibility of achieving that full connectivity. This makes clearer the need for the sum of efforts and public and private resources, to achieve the fulfillment of the constitutional mandate.
We know that the government budget, beyond being a simple accounting entry, constitutes an instrument for the promotion of economic growth, development, equity and social inclusion.
Its effective implementation requires the identification of its optimal levels, as well as the actions, institutions and legal framework to achieve these ends.
Even more so if this allocation of resources triggers the execution of public policies ordered in our Constitution, such as the achievement of the connectivity of society.
Economic Package 2020: Surplus Primary Balance
At the beginning of September, the Executive Branch sent to the Legislative the Economic Package corresponding to the year 2020 which includes, among other documents, the Draft Budget of Expenditures of the Federation (PPEF) that will have to be subject to adjustments in the subsequent discussions that derive from here until its approval.
In a context of slowdown and even a virtual global economic recession, complex international geopolitics, easing of the monetary policy of various countries and low oil prices, the Executive estimated government spending equivalent to $6.1 trillion pesos, equivalent to 8% of GDP in 2018.
As for 2019, the primary budget balance forecast for 2020 will be in surplus (0.7% of GDP).
PPEF 2020: The Proposed Allocations
Regarding the items and allocations for the execution of public connectivity policies, an expansion of 30.7% in real terms is projected, relative to that budgeted for sectoral institutions and programs in 2019. [1]
A factor behind this is the recent creation of CFE Telecommunications and Internet for All (CFE Telecom), a subsidiary company of the Federal Electricity Commission (CFE) that will seek to provide non-profit telecommunications services to end users who do not have a commercial offer, and, free of charge, in public spaces.
According to the PPEF, for the fulfillment of this task, it is planned to allocate $1,095 million pesos (mdp) to the company, of which 91% corresponds to investment expenditure through an acquisition program and the rest (9%) will be spent on current expenditure.
For its part, the Undersecretariat of Communications would receive $80 million pesos, while Telecommunications of Mexico (Telecomm) and the Telecommunications Investment Promotion Body (PROMTEL) would be allocated $550 million and $169 million pesos, respectively.
In turn, the Coordination of the Information and Knowledge Society (CSIC) and the creation of telecommunications policy of the SCT Centers would have $ 483 million pesos. and $84 million pesos, respectively, while the General Directorate of Telecommunications and Broadcasting Policy, $103 million pesos. If this allocation is realized in the terms proposed, the Undersecretariat is the one that would suffer the greatest cut, namely, 33.2% less resources in real terms in relation to the approved budget for 2019. However, Telecomm would receive a real increase of 70.8% in the same comparison.
The Coordination of the National Digital Strategy, a dependency of the Office of the Presidency, would receive $12 million pesos, while the Coordination @prende.mx, in charge of the implementation of Information and Communication Technologies (ICT) in educational processes and which is attached to the Ministry of Public Education (SEP), would have $42 million pesos. In real terms, the first instance would receive 29.9% fewer resources and the second, 2.8% less.
As for government programs focused on access to and full use of ICT, $175 million pesos would be allocated to PROSOFT, which provides support for the development of software and technology services, which translates into a collapse of -52.3% in real terms, in relation to the PEF of 2019.
On the other hand, "Internet for All", which provides connectivity in public spaces would receive $ 467 million pesos, that is, 28.0% less in real terms.
By encompassing all these items with that of the Federal Institute of Telecommunications (IFT) that amounts to $ 1,730 million pesos. (10.3% higher than in 2019 in real terms), a total of $4.5 billion pesos is obtained that would be allocated to the ICT sector, which is barely equivalent to 0.1% of the total budget to be spent in 2020.
A sector with strong capitalization needs for the development of coverage and improvement in the provision of services and marked multiplier effects associated with the deployment of infrastructure and the boost of productivity, requires a public budget also preeminent and sufficient.
Resources to Provide "Internet for All": Are They Enough?
It is worth reviewing here whether these proposed allocations are sufficient to continue on the trajectory and, eventually, achieve the scenario of universal connectivity and full use of its tools and applications.
The issue looks clear when reviewing whether 0.1% of government investment is sufficient, while considering the convenience of diversifying the number of programs and projects that stimulate the growth of telecommunications networks and the use of IT.
Indeed, a country that dedicates efforts and wishes to move timely and effectively towards a fully digital society requires a consistent and sufficient digital budget.
Taxes on Digital Services for Fiscal Equity, Competitiveness and Connectivity
The offer of platforms and access routes to audiovisual content are expanding rapidly and resulting in increasing competition for attraction and capture of audiences. It is striking the continuous multiplication in the number of bidders and the market share reached by those digital platforms of content on the Internet, called 'Over The Top' (OTT for its acronym in English), mostly those from abroad.
The growing competition for attraction and capture of audiences has resulted in the hiring of OTT platforms among households went from 1.6% of the total in 2011 to 24.8% in 2018.
It is precisely the players from abroad who have benefited from a fiscal and regulatory framework that does not yet contemplate their operation.
Its operation in Mexico and the rest of the world has not yet adapted its tax obligations (i.e. tax ladder) and regulations with those of the rest of its national competitors. So we are in the presence of a scenario of unfair and inequitable competition for our producers and national content companies, a circumstance that, among many other effects, undermines the development of the Mexican industry.
In our country and in line with the international experiences and recommendations that seek and point to the gestation of a competitive balance between content players, recent parliamentary initiatives and the Ministry of Finance and Public Credit (SHCP) have been promoted that aim to leave behind the scenario of legal vacuum and regulatory laxity to achieve competitive equity in the audiovisual content market. This is based not on the creation of excise duties or new levies, but on the simple application of VAT to foreign digital platforms and services.
This fact would imply a recovery of resources from the public treasury of $ 3,600 million pesos per year, which could be allocated to programs for universal connectivity. In this regard, this amount would be equivalent to almost six times that allocated to the Priority Program "Internet for All" in 2019.
It is time for us to leave the fiscal delay for the digital world of 7 years and our country joins the list of nations that have dedicated efforts to find a competitive balance for innovation, investment incentives and development of the national audiovisual content industry.
Another case of tax equity, for competitive equity and even for connectivity.
Text written by Ernesto Piedras and Samuel Bautista of The Competitive Intelligence Unit.
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