QUITO: Ecuador's Congress rejected a proposal to hike taxes on Thursday, dealing a blow to leftist President Rafael Correa who has regularly counted on votes from a splintered opposition to pass laws.
The measure would have provided some $400 million a year in additional revenues for the government, whose budget calls for increased spending in 2012.
The ruling Alianza Pais political movement has never had a solid majority in Congress. But since Correa first took office in 2007, it has frequently rallied support from opposition lawmakers to pass legislation.
However, Alianza Pais lost sway in the unicameral Congress this year when several lawmakers switched to the opposition over differences with Correa, whom political rivals say is concentrating too much power.
Correa won a referendum in May over 10 reforms, including some aimed at overhauling the justice system. Critics say the changes threaten the balance of power because they give the government a bigger say on judicial appointments.
"The opposition is gaining ground in the assembly ... . Next year is an electoral year and I think lawmakers will be increasingly ashamed of voting in line with the government," said Vicente Taiano, who belongs to a conservative party.
Oil is Ecuador's main revenue earner, and high crude prices in the past few months have allowed Correa to boost spending on hospitals, schools and roads, which has boosted his popularity ahead of a general election set for early 2013.
Since defaulting on billions of dollars worth of foreign debt in 2008, Ecuador has relied on credits from multilateral lenders and loans from China to finance its fiscal deficit.
The bill had called for raising the tax on capital outflows to 5 percent from 2 percent. It also aimed to increase duties on cigarettes and alcoholic beverages and to impose a new "green tax" on vehicles.
"It's obvious that opposition lawmakers have defended the interests of the cigarette and beverage companies, the car importers," said Alianza Pais deputy Paola Pabon.
The Correa government had argued the changes would only affect the wealthy. Opponents said the tax measure would hurt the working class as well.
"Rafael Correa is making Ecuadoreans poorer and poorer with all these taxes," said opposition lawmaker Gilmar Gutierrez.
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