Mexico’s Fox Suffers Defeat on Tax Plan

MEXICO CITY — President Vicente Fox and members of his ruling National Action Party, or PAN, reacted angrily Monday to a congressional vote that effectively killed his plan to rescue Mexico’s cash-strapped government with new taxes.

The vote in a Mexican congressional committee late Sunday was a major political defeat for Fox, who had lobbied hard for a fiscal reform package that included a new tax on food and medicine.

The plan faced stiff resistance from opposition lawmakers who said it would hit hard at working people and the poor.

Fox’s supporters accused the opposition of demagoguery.

“A lot of people are betting on the failure of the government of Vicente Fox,” said Federico Doring, a PAN lawmaker in the Chamber of Deputies, the lower house. “They are thinking more about the election of 2006 than they are of the present needs of the country.”

Elected in 2000, Fox promised to reform a government controlled by the Institutional Revolutionary Party, or PRI, since the Mexican Revolution in 1910. But in recent months, he has suffered a series of defeats that calls into question how much influence he will wield in the remaining years of his term.

Speaking in a nationally televised address late Sunday, the president called the vote a “historic error.”

“Those who did not commit themselves to our reforms have done a grave harm to the country, to the future prospects of the country,” he said.

The president had proposed a 10% tax on food and medicine -- both currently exempt from Mexico’s 15% value-added tax. With the plan’s defeat, he said, the government will be forced to cut essential services to make up for the $8.8 billion in missing revenue.

The president reiterated those arguments Monday in a speech in the southern state of Chiapas, where he was presiding over the opening of a highway.

“We will continue fighting until the end of our term for a fiscal reform that will spur growth, generate jobs and reduce poverty,” Fox said.

In the face of declining oil revenue and a high rate of tax evasion, the tax increase was part of a larger plan to stimulate Mexico’s economy and keep the country’s fiscal house in order.

Fox is also backing a bill that would allow foreign and private investment in Mexico’s nationalized electric companies. That bill, too, is facing stiff opposition in the legislature.

On Sunday, with the debate on the tax bill still ongoing in the Treasury Committee, 17 of the panel’s 30 members circulated a letter urging PAN to withdraw Fox’s proposal, saying it represented a further attempt to impose neoliberal ideas on the Mexican people.

“We Mexicans are living the negative effects of an economic model that, far from resolving the social problems of the most needy, aggravates their poverty,” the letter said.

At the last moment, two PRI congressmen who had signed the letter switched sides and voted for the proposal. The newspaper La Jornada reported that both were pressured to switch sides after intense lobbying by government officials.

The proposal was defeated 15 to 13, with two abstentions.

The debate over the tax proposal has caused a split in the PRI, which at first gave signs it would support the Fox government. Because PAN is a minority in both houses of Congress, Fox needs the support of the PRI to pass legislation.

But earlier this month, the PRI voted to dismiss its legislative leader, Elba Esther Gordillo, saying she had grown too close to Fox.

On Sunday, nine of the 14 PRI lawmakers on the Treasury Committee voted against the president’s tax plan.

“During the last election campaign we promised not to impose any new taxes,” said Jose Luis Flores Hernandez, a PRI congressman who voted against the proposed taxes.

Manuel Camacho Solis, a congressman with the center-left Democratic Revolution Party, said Fox had wasted all of the political capital from his 2000 election victory, which was widely celebrated at the time as a turning point in the history of the nation.

“The president has polarized his relationship with Congress and with the opposition,” Camacho Solis wrote in the newspaper El Universal on Monday. “He has surrounded himself with adversaries, but he hasn’t achieved his goals.”