Czech Premier Delays Tax Bill Vote as Row Shifts to Congress

Czech parliament postponed a vote on tax increases that is tied to a confidence motion in the government, as Premier Petr Necas’s struggle to win backing for his austerity policies shifts to a weekend party congress.

The lower house in Prague, which was to debate as early as tomorrow the bill, adjourned its session today and delayed the vote for at least a week. Lawmakers will resume deliberations at 2 p.m. on Nov. 6, according to proceedings at the legislature.

Necas is battling to win support for the package of measures he says are needed to cut the budget deficit next year as a group of deputies from his Civic Democratic Party, or ODS, opposes his tax plan. With the country in its second recession since 2009, Necas will seek re-election as the party chairman at a congress on Nov. 3-4.

“I can’t imagine that the congress would approve a resolution demanding tax increases,” Petr Tluchor, one of the Civic Democrats opposing the tax bill, told reporters today. “I can’t imagine that our position after this weekend would differ from what we are declaring today. We simply won’t support tax increases because we are convinced that it would be against the ODS’ program.”

Six of Necas’s lawmakers, including Tluchor, joined the opposition on Sept. 5 and voted against the bill that includes raising sales-tax rates and a new tax rate for high earners. The government re-submitted the same bill to parliament with Necas staking the Cabinet’s existence on the legislation by tying it to a confidence vote.

The government is trying to avoid the fate of European leaders who lost power in a wave of protests against austerity measures that contributed to recessions in economies from Romania to Spain instead of tackling the euro area’s debt crisis as envisaged.

The administration, which lost its parliamentary majority in April over personnel and budget rows, credits previous measures with helping to reduce borrowing costs. Necas says the new package will maintain investor confidence by cutting the fiscal deficit to less than the European Union’s limit of 3 percent of economic output next year.

The yield on five-year koruna bonds fell to a record-low 0.95 percent at 3:55 p.m. today in Prague according to generic data compiled by Bloomberg. Czech domestic bonds are influenced by the central bank’s all-time low interest rates as falling household consumption caused an economic contraction in the past three quarters and tamed inflation.

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 gross domestic product last year from 4.8 percent in 2010 and the Finance Ministry estimates it at 3.2 percent this year.

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

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