Subsidizing private education?

Submitted by gwolf on Mon, 02/14/2011 - 17:35

Hrmh... I am listening to a local news radio station. Of course, what I am about to write lacks information and insight — but it follows a conversation I have had with several groups of friends.

Our de-facto president has decreed that the tuition for private schools will be deducted from the Impuesto sobre la renta (revenue/profit tax) up to a given tuition level (IIRC up to MX$2000 a month per child per school). The interviewed subsecretary said they expect this deduction will reach MX$13,000 million, around US$1,000 million. This is, about a third of what is assigned to the National University (UNAM).

At a first sight, this sounds good. However, I just thought about a discussion I have had with many friends. This money the government will hand back to the taxpayers has to be cut from somewhere (after all, we are not in a country with huge superavit or anything like that).

Why does this sound unfair ot me? Because it benefits the few in perjudice of the many. I did a quick search, and found this work based on numbers published by INEGI ten years ago: According to the last table, the money spent on private education was between 5% and 10% of that spent on public education — Of course, it is almost impossible to infer the number of students from this alone. I know I could find authoritative data on this regard by searching a bit more, but after all I don't want to spend all (work!) evening on a blog post unless it creates some discussion. Lets say, just for the sake of the exercise, that this means that ~3% of the country's students learn in a private school.

In Mexico, the quality of the basic public education (primary/secondary, ages 6 to 18) has fallen hugely in the last decades. Even when I was to school (but not when my parents), the first subjective sign that a family had broken the low-income barrier is that they were finally able to send their children to private schools. Because, no matter how bad they are, public schools are perceived to be worse. Of course, I was among the "lucky" ones to be in a private school. Higher education (universitary level) is still way better ranged.

Anyway... I want to get this post over with. Why do I oppose this subsidies/tax devolution? Because it will lead to widen the difference between private and public education. And because it will be benefical only for medium-high and high classes — People who are formaly employed (as I am) do not present a tax declaration, so we won't get any deductions. Between ⅓ and ½ of the country's economically active population work informally (from selling in the street to covering up huge transactions in large locals). Most of the population don't (directly) pay "impuesto sobre la renta", and will not get the benefit of this subsidy.

This money has to be taken from other sources in order to be given to private education. If the government wants to improve the education for everybody, why not assign it to the public sector? To specific areas in the public sector, if they don't want to hand it over to the (yes, very, incredibly) corrupt SNTE (National Union of Education Workers)?

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Anonymous's picture

If a student goes to private

If a student goes to private school, they don't use the services of the public school, and thus they cost the public school less. It makes perfect sense to take away the funds the public school would have used to educate that student.

I've never understood the objections to programs which allow students to take the money from their taxes that would have gone to public school and give it to a private school to get a better education instead. After reading your post, I still don't.

gwolf's picture

Who will be getting the benefits?

As I stated in my post, not everybody in Mexico declares taxes (even if staying completely legal - I don't declare taxes, because I am full-time employed and make less than ~MX$400,000 a year; my employer takes that responsability for me). Of course, this deduction could be seen as an incentive for people at my income level to do the declaring - Anyway, add to it abot ⅓ of the economically active population who live in the "informal economy" (i.e. outside the system, not declaring or paying taxes at all). We will not get benefitted by this measure.

Few people will. And those who do, have their children already in a private school. This means, this idea will be a tax exemption technique focused at high-income sectors.

Anonymous's picture

Fair enough, doing it as a

Fair enough, doing it as a tax deduction does lead to that problem given the tax system you describe. However, that seems like a quirk of the tax system you describe, rather than a general argument against allowing people who use private education to recover the money otherwise wasted on an unused public education. (Not quite as good as not taking away that money to begin with, but I'll take what I can get.)

Anonymous's picture

Obligación en la declaración del ISR - excepción.

La obligación establecida por la ley para la presentación de la declaración anual de las personas físicas relativa al impuesto sobre la renta, no es aplicable a aquellos contribuyentes que perciban ingresos por salarios equivalentes o inferiores a MX$400,000.00 anuales, pues en el caso específico de dichos individuos sujetos a una relación laboral, de esa declaración se encarga el patrón por ser quien retiene y, posteriormente, entera el impuesto sobre la renta a la autoridad fiscal. Sin embargo, la misma ley establece la opción para esos contribuyentes personas físicas, de presentar voluntariamente la declaración anual, lo que deja abierta la posibilidad que deduzcan algunos conceptos. (Aquellas personas físicas cuyos ingresos por salario excedan los $400,000.00, están obligadas a presentar su declaración anual, sin que obste la retención y entero respectivos que haga el empleador.)

En cuanto a la obligación del Estado de proporcionar educación y la necesidad de mejorar la que se imparte, mucho se ha insisitdo a los gobernantes, pero no entienden ni a periodicazos. En cambio, instituciones como el IFE reclaman más recursos cada año, aunque no haya elecciones federales. Y entre esos recursos están las prerrogativas para los partidos políticos. Los recortes tienen que ser en esos recursos y no en educación.

Erik Johansson's picture

The 400,000 MXN yearly limit

The 400,000 MXN yearly limit sounds more like a requirement, than a right, so I guess you can still file for tax exemptions. And given my rusty spanish I think that what "Obligación en la declaración del ISR - excepción." says.

This is how we do it in overe here, though we all file taxes most of us just get a mail saying "hey! send an SMS to this number if you really got 1000k this year". You can change your statement up to 4 years back (no interest earned, but interest owed)

Since rich kids always tend to get better grade, or find another path, I've never understood the meaning of expensive exclusive schools. But I'm in backwaters Sweden with very few privately funded schools (lots of private schools running on government money though).

gwolf's picture

You are right, but...

There are many incentives not to present a tax declaration. First, that it is a complex thing that is meant to be filled in by a public accountant — I did it twice, and believe me, the result was worse than the alternative. If you intend to present your tax declaration, you'd better collect fiscal invoices at every place you buy anything that smells deductable for the whole year. Fiscal invoices in Mexico require filling in a ridiculous amount of information, amounting to several minutes per paper, and you have to keep them ordered. And, of course, it is doable — but is something you don't want to remember constantly throughout the year.

Of course, if the net benefit to me would be equivalent to (up to) one month of my salary every year, I'd probably do so. Even more so in the case of people with lower income. But again, this is deducted from the income tax — I would not pay that much of income tax to begin with (and, again, I am in the upper percentiles of income). Only very wealthy people will have to pay levels similar to the deductable amount.

Zolin's picture

There are many incentives

There are many incentives to present your declaration if you are a formal employee doing under 400K MXN per year:

You can deduct:
- Medical and Dental expenses, eyeglasses and clinical studies are included but not medicines
- Funeral expenses
- The real interest of your mortgage (even from INFONAVIT)
- And starting on the 2011 exercise the school of our children.
You don't need an accountant for your annual declaration, Just collect invoices during the year for those expenses (either yours or from your economic dependents), inform your employer that you want to do your own declaration, download the "DeclaraSAT" program from the SAT website or you can use the online version, fill in the fields add the CLABE of your bank account where you want them to deposit the refund, sign it with your FEA (Firma Electronica Avanzada), and that's it.

The downside is that DeclaraSAT only runs in windows. I haven't tested the online version on Linux but it should work.

Like you, I'm doing less than 400K MXN and I have been able to get almost 1 month of salary.