Mexico's Calderon getting closer to tax reform

By Jason Lange

MEXICO CITY, July 12 (Reuters) - Mexican President Felipe Calderon is closing in on a landmark victory in Congress to rewrite tax laws after courting the opposition party that torpedoed his predecessor's reform agenda.

Calderon's conservative party lacks a majority in Congress, but his proposal to boost tax revenues might get the support it needs from a key political party if he accepts relatively minor changes, a senior lawmaker said on Thursday.

"The way things are moving along now, we see a good chance of (the tax talks) bearing fruit," said lawmaker Jorge Estefan, a point man in fiscal reform negotiations for the opposition Institutional Revolutionary Party, or PRI.

Economists have long warned Mexico is headed for financial disaster if it fails to reduce its dependence on faltering oil production, which funds about a third of Mexico's budget.

Estefan, president of the lower house finance committee, said the PRI wants changes to Calderon's bill but that it would still allow the reform to significantly boost public revenue.

The plan would increase the tax intake by 2.8 percent of gross domestic product by 2012, mostly with a 19-percent minimum income tax for companies known as the CETU.

"We all know the country needs more tax collection and in general terms I do not think the changes that we make will be that major," Estefan told Reuters.

The PRI wants state governors to have more power over spending federal revenues, as well as a tax break for state oil monopoly Pemex.

HIGH-FLYING COURTSHIP

Calderon has wooed PRI lawmakers on tax reform over dinners at his home and, according to a source in his office, with seats on the presidential jet during a recent state visit to the European Union headquarters in Brussels.

He has also publicly praised the PRI for sitting down at the negotiating table.

"It's about having a closer relationship and getting (the PRI) on board," said the source, who asked not to be identified.

That is a big difference from the politicking style of his predecessor, Vicente Fox, whose six-year term ended in November without any major economic reform.

Fox's failed attempts to push tax reform were marked at times by his refusal to get his hands dirty in actual negotiations, or by ill-timed public criticism of the opposition in the middle of talks.

"I have to admit ... there has been a reconciliation with lawmakers," said PRI lawmaker Samuel Aguilar, also a member of the lower house finance committee.

The PRI joined forces with Calderon's National Action Party, or PAN, in February to approve pension reform for public workers, laying the foundation for current tax talks.

The reform took some observers by surprise after Calderon hashed out the measure in closed-door talks with the PRI. It then sped through committees and floor votes.

"Calderon is a smooth operator," said Federico Estevez, a political scientist at ITAM university in Mexico City.

Calderon is also benefiting from a weak showing by the PRI in 2006 congressional elections. The PRI went from being the biggest force in Congress to No. 3, which has left the party fighting for political relevance.

"We found a way to be the opposition without being an obstruction. That is our role," Estefan said. (Additional reporting by Miguel Angel Gutierrez)