Argentine senate defeats presidential tax proposal as VP votes against government

In a stunning reversal of fortunes and of a decision earlier taken by the Argentine lower house of the legislature, the upper house has rejected increases in the agricultural export tax that have caused a farmer rebellion, with the vice president siding with farmers and casting the deciding vote.

After nearly 18 hours of debate, the Senate voted, 37 to 36, against the system of floating-rate taxes, which the government of president Cristina Fernández de Kirchner imposed in March without consulting the Congress. Earlier this month, the lower House narrowly approved the system, 129 to 122, after 19 hours of debate. (See: Argentina's government-farmer stand-off heats up as Congress approves new tax)

The new tax system raised taxes on soybeans from a fixed rate of 35 per cent to a rate that has floated up with global prices to more than 44 per cent. Amid rising costs for materials like fertilizer, it reduced farm profits and provoked a series of crippling strikes throughout the country, shutting down highways for grain trucks bound for exports and causing scattered food shortages.

Even after nationwide protests, the president had refused to roll back the taxes, saying they were needed to share soaring farm profits with Argentina's 10 million poor. Farmers contend the higher taxes make it hard for them to make a living and that they need to reinvest profits to increase production to meet rising demand.

Today's vote was tied until vice president Julio Cobos, who is also leader of the Senate, broke the deadlock with a deciding vote against the measure.

"I think today is the most difficult day of my life," Cobos said. "They tell me I must go along with the government for institutional reasons, but my heart tells me otherwise. May history judge me, my vote is not for, it's against."

The vice president's contrarian stand was not unexpected. Cobos had previously expressed concern about the motives behind tying the tax to the value of grain on the international markets. He had also angered the president in recent weeks by speaking out in favor of the farmers and for holding unsanctioned meetings with provincial governors after official government talks had broken down.

Cobos belongs to the Radical Civic Union party that has traditionally opposed the Peronist party headed by Fernandez. It was not immediately clear whether the president would allow him to continue to serve in his position.

The new tax measures have sharply divided the country and led to strike and tit-for-tat rallies. In Palermo more than 230,000 people attended the pro-farmer rally, while an estimated 100,000 government supporters rallied outside Congress on Tuesday to support the measure.