April 30, 2015 / 9:20 PM / 4 years ago

UPDATE 2-Puerto Rico governor blasts lawmakers on tax reform veto

(Adds comments from Padilla speech)

By Megan Davies

NEW YORK, April 30 (Reuters) - Puerto Rico’s House of Representatives voted against a controversial tax reform, a move blasted by the governor on Thursday as irresponsible and dangerous to the island’s financial stability.

Some of the U.S. territory’s general obligation bonds fell following the news to their lowest levels since being sold. The House voted against the bill 28-22, according to a government source.

“The lawmakers who voted against the measure will have to answer to history for their irresponsible actions,” Governor Alejandro Garcia Padilla said.

He said a handful of legislators had put the future of Puerto Rico at risk to further their personal agenda, as well as risk public services, the retirement system and the payment of debts and health services.

In an annual address late on Thursday, Padilla said access to financial markets was extremely difficult without the tax reform. He outlined a plan to turn around the island’s finances by creating groups to strengthen liquidity and improve government efficiency, as well as by cutting spending in all branches of government.

The Caribbean island, struggling with more than $70 billion debt and an economy that has been in or near recession for eight years.

Top finance officials recently warned lawmakers the U.S. territory will likely shut down in three months because of a liquidity crisis.

Puerto Rico has been trying to put together a financial lifeline $2.9 billion bond deal, though three investor sources last month said investors were losing interest.

Padilla told a skeptical public the tax measures would benefit the poor and middle class, while combating tax evasion, but economists, business groups and community organizations voiced opposition.

Much of the debate centered on how much revenue the reform would raise. The plan would substitute a 7 percent sales tax with a 16 percent value-added tax, while cutting income taxes.

“From day one, I have argued that this was the wrong bill at the wrong time, and that it would hurt - not help - the economic and fiscal situation in Puerto Rico,” the territory’s congressional delegate in Washington, Democrat Pedro Pierluisi, said.

Pierluisi is president of Puerto Rico’s opposition New Progressive Party, which was against the bill, but is not a member of the House in Puerto Rico.

The price on bonds due in 2035 dropped nearly 2.4 percent, boosting yields to 10.6 percent from 10.3 percent, according to Municipal Market Data. (Additional reporting by Karen Pierog; Editing by Ted Botha, Andre Grenon and Leslie Adler)

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