Congress throws out government's fiscal reform budget
As we expected, the government lost the crucial vote on its budget and fiscal reform projects in the lower chamber of congress on 11 December. The opposition secured a comfortable majority (251) in the chamber, which is currently down to 496 seats because of election re-runs. The government got 234 votes and there were four abstentions.
The vote by the lower chamber reversed the decision by the finance committee of the chamber to approve the budget. The committee made its decision on 8 December, but it soon became apparent that the biggest party in congress, the Partido Revolucionario Institucional (PRI), which had split over the government's proposed fiscal reforms, and in particular on whether food and medicine should become liable for value-added tax (VAT), was having second thoughts.
The lower chamber closed off a possible avenue of retreat by deciding, by a thumping 467 votes, that the budget could not be resubmitted to the finance committee. This means that the government's fiscal reforms are now dead in the water. Congress did, however, set a responsible budget for 2004.
As a result of the initial congressional vote on the budget, Elba Esther Gordillo, the leader of the pro-government PRI faction, resigned as the PRI's leader in the lower chamber. She is maintaining her position as the PRI's secretary-general, or number two.
The congressional decision struck out the final government compromise, which was to extend VAT to school fees and public transport, at 15%, and to levy an 8% tax on importing, manufacturing and wholesaling food and medicine. The congressional decision also nixed the income tax reforms (cutting corporate income tax gradually from 34% to 30%, and reducing the personal income tax rate to 25%). The personal income tax threshold starts at annual incomes equivalent to five minimum wages (about US$7,600 a year). In return for lower personal tax rates, bonuses and overtime payments would become taxable.
President Vicente Fox was clearly disappointed by congress's decision. Four hours after the vote, which was taken at about 5pm Mexico City time, Fox broadcast to the nation for eight minutes. He said that the decision had delayed the construction of the country's future. He blamed the power struggle in the PRI for the failure of the fiscal reform.
This is a bit rich: the government failed to push through a fiscal reform when it was stronger in congress in 2001. Fox had also encouraged the faction of the PRI led by Gordillo. When the PRI split came, as Gordillo soon realised, she did not have enough votes to get the budget through congress with the backing of Fox's Partido Acción Nacional. In the event, 71 of the 222 Priístas voted with her and with the government.
Gordillo's rival, Emilio Chuayffet, secured the support of 141 Priístas and 96 votes from the Partido de la Revolución Democrática. He got a smattering of support from the minority parties in congress and one PAN vote.
The vote probably turned on the way 19 Priísta deputies for the Estado de México voted. They ignored an order from the state governor, Arturo Montiel, to vote with Gordillo in support of the government's budget. Their decision weakens Montiel immeasurably and strengthens Chuayffet, who comes from the Estado.
Arguably, Fox should have been faster on his political feet over the past 10 days, when the split in the PRI became obvious. That he was not should not have come as a surprise to anyone. His government has constantly been outmanoeuvred in congress over a range of crucial pieces of legislation, starting with the Indian rights and customs bill in 2001.
The vote by the lower chamber reversed the decision by the finance committee of the chamber to approve the budget. The committee made its decision on 8 December, but it soon became apparent that the biggest party in congress, the Partido Revolucionario Institucional (PRI), which had split over the government's proposed fiscal reforms, and in particular on whether food and medicine should become liable for value-added tax (VAT), was having second thoughts.
The lower chamber closed off a possible avenue of retreat by deciding, by a thumping 467 votes, that the budget could not be resubmitted to the finance committee. This means that the government's fiscal reforms are now dead in the water. Congress did, however, set a responsible budget for 2004.
As a result of the initial congressional vote on the budget, Elba Esther Gordillo, the leader of the pro-government PRI faction, resigned as the PRI's leader in the lower chamber. She is maintaining her position as the PRI's secretary-general, or number two.
The congressional decision struck out the final government compromise, which was to extend VAT to school fees and public transport, at 15%, and to levy an 8% tax on importing, manufacturing and wholesaling food and medicine. The congressional decision also nixed the income tax reforms (cutting corporate income tax gradually from 34% to 30%, and reducing the personal income tax rate to 25%). The personal income tax threshold starts at annual incomes equivalent to five minimum wages (about US$7,600 a year). In return for lower personal tax rates, bonuses and overtime payments would become taxable.
President Vicente Fox was clearly disappointed by congress's decision. Four hours after the vote, which was taken at about 5pm Mexico City time, Fox broadcast to the nation for eight minutes. He said that the decision had delayed the construction of the country's future. He blamed the power struggle in the PRI for the failure of the fiscal reform.
This is a bit rich: the government failed to push through a fiscal reform when it was stronger in congress in 2001. Fox had also encouraged the faction of the PRI led by Gordillo. When the PRI split came, as Gordillo soon realised, she did not have enough votes to get the budget through congress with the backing of Fox's Partido Acción Nacional. In the event, 71 of the 222 Priístas voted with her and with the government.
Gordillo's rival, Emilio Chuayffet, secured the support of 141 Priístas and 96 votes from the Partido de la Revolución Democrática. He got a smattering of support from the minority parties in congress and one PAN vote.
The vote probably turned on the way 19 Priísta deputies for the Estado de México voted. They ignored an order from the state governor, Arturo Montiel, to vote with Gordillo in support of the government's budget. Their decision weakens Montiel immeasurably and strengthens Chuayffet, who comes from the Estado.
Arguably, Fox should have been faster on his political feet over the past 10 days, when the split in the PRI became obvious. That he was not should not have come as a surprise to anyone. His government has constantly been outmanoeuvred in congress over a range of crucial pieces of legislation, starting with the Indian rights and customs bill in 2001.