May 17, 2012 / 12:17 AM / in 6 years

UPDATE 1-Growers derail tax hike in Argentine farm province

* Halt to tax hike seen as setback for Governor Scioli

* Growers say proposed tax hike would be crippling

* Provincial farmers call five-day strike in protest

* Growers inundate provincial capital in lobbying blitz

By Hugh Bronstein

BUENOS AIRES, May 16 (Reuters) - A last-minute lobbying blitz by farmers in Argentina’s top grains province, Buenos Aires, stopped local lawmakers from raising land taxes on Wednesday in an unexpected setback for Governor Daniel Scioli.

The governor, seen by many international investors as a possible market-friendly presidential candidate in 2015, is hard pressed to increase provincial tax income. But the country’s key farm sector came out in force against his tax hike bill just as the Buenos Aires Chamber of Deputies looked sure to pass it.

Soybean and corn growers called a five-day strike and descended on the provincial capital La Plata, chanting in the streets and knocking on lawmakers’ doors. They say the measure would increase real state taxes by up to 300 percent in some cases.

Instead of being easily passed, as expected, a quorum could not be reached and the legislative session was suspended until Thursday. The tax plan, which sailed through the provincial Senate last week, is key to Scioli’s effort at reducing Buenos Aires’ fiscal deficit and gaining some financial independence from President Cristina Fernandez.

“The lack of a quorum thwarts, at least temporarily, Scioli’s efforts at increasing provincial tax collection and reducing his dependency on financial aid from the central government,” said Ignacio Labaqui, who analyzes Argentina for Medley Global Advisors in New York.

“Lack of resources could complicate governability for Scioli and negatively affect his chances of running for the presidency in 2015,” he added.

This would be bearish for investors put off by Fernandez’s state-centric policies, such as import and foreign exchange controls that have hurt business confidence. She nationalized the country’s private pension system in 2008 and this month took over the country’s biggest oil company, YPF.

The president’s strongest supporters want to change the law by striking the ban on third presidential terms. Scioli says he is interested in running for president, but only if Fernandez makes no move to change the constitution to allow her to run again.

“Hardcore Fernandez supporters do not see Scioli as a legitimate successor,” Labaqui said. “They think of him as right wing, which could be why her allies in the provincial chamber did not help provide a quorum for his tax bill today.”

Lawmakers are set to debate the tax bill again on Thursday, but farm groups said they will keep the pressure on.

“We hope that now they’ll listen, and that we negotiate a solution,” said Eduardo Buzzi, head of the Agrarian Federation farm group. “This tax proposal would not just punish farmers. It would punish all of Buenos Aires.”


Industry insiders do not expect the planned five-day suspension of grains sales by Buenos Aires farmers to slow exports from Argentina, the world’s third-biggest soybean supplier. But if the tax hike goes through, more farmer protests could follow and international shipments could be affected.

Argentina is also the world’s No. 2 corn supplier and its biggest source of soymeal, which is used to feed cattle in China’s booming beef industry. It is also the No. 1 exporter of soyoil, used for cooking and making biofuels.

Most of Argentina’s grains output comes from Buenos Aires, located at the heart of the country’s vast Pampas farm belt.

Provincial farm minister Gustavo Arrieta said the tax hike was justified.

“Rural land values have not been revalued for 15 years while urban real estate values have been readjusted six times over the last 10 years,” he told reporters.

High world soy prices have helped jack up land values in Argentina. But farmers, still hurting from a drought that parched key Pampas growing areas in December and January, say the tax increase would force some of them to sell their fields.

Labor disruptions are common in Argentina, where double-digit annual inflation fuels steep wage demands. Some strikes last only hours or a few days, and the government intervenes when they drag on long enough to halt key soy and corn exports.

But Fernandez, who has feuded for years with the farm sector over policies such as curbs on corn and wheat exports, would not be able to force farmers to resume selling agricultural products should the strike continue past Sunday.

“The combination of the drought, rising costs, continued export curbs on certain products and the threat of higher real estate taxes would ruin a lot of growers and regional economies,” Ruben Ferrero, president of farm group CRA, said.

Widespread farmer protests against soy export taxes disrupted grain exports in 2008 and 2009. Those strikes rattled the government of Fernandez, who nonetheless went on to win a landslide re-election in 2011 based on strong growth in Latin America’s No. 3 economy.

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