Czech Premier’s Lawmakers Quarrel in Tax Row Threatening Cabinet

Czech Premier Petr Necas’s lawmakers requested more time today to resolve a quarrel over a proposal to raise taxes that threatens to bring down the coalition Cabinet.

Necas suffered a loss in the lower house of parliament on Sept. 5 when he failed to secure enough votes to push through a bill that included tax increases. Six lawmakers from Necas’s Civic Democratic Party joined the opposition and rejected the set of budget measures, saying they are against a plan to boost revenue with higher taxes.

The Cabinet submitted the legislation to Parliament again, saying it is needed to cut the fiscal shortfall to less than the European Union’s limit of 3 percent of gross domestic product next year and linked approval of the bill to a vote of confidence. The parliamentary budget committee today adjourned for a week its debate on the bill as lawmakers sought a compromise solution.

“Adjourning the debate today is basically the only way to prevent a similar result as in the previous debate of the identical document,” Marek Snajdr, one of the ruling-coalition lawmakers who oppose the tax increases, said at a committee meeting in Prague.

The government approved on Sept. 26 the budget draft for next year in which it assumes deficit reduction with the help from higher taxes. The draft sets the ceiling for the public- finance deficit at 2.9 percent of economic output, compared with 3.2 percent expected this year.

Majority Lost

Necas, who lost his parliamentary majority in April amid personnel and budget rows, credits previous austerity measures with helping reduce borrowing costs and says the new package, which includes higher sales taxes and a new levy on the highest incomes, will maintain investor confidence.

The two-year-old Cabinet has cut investment, raised the sales tax and curbed spending on public wages. The budget shortfall narrowed to 3.1 percent of GDP last year, from 4.8 percent in 2010.

President Vaclav Klaus last week also vetoed a pension- overhaul bill designed to boost private savings for retirement. Necas said Klaus’s decision may destabilize the government.

“Failure to pass the pension reform bill or the draft budget in its current form would itself not prompt a loss of creditworthiness for the sovereign, but the political environment is threatening to undermine fiscal policy credibility within the context” of the EU’s excessive deficit procedure, Moody’s Investors Service said on Oct. 2.

“Maintaining confidence that the sovereign will stay on track toward fiscal sustainability and will curb further deterioration of its balance sheet are key factors for preserving creditworthiness,” it said.

To contact the reporter on this story: Peter Laca in Prague at placa@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.