Czech Premier’s Party Says Bill Setting Debt Cap Will Be Snubbed

Czech government efforts to set limits for debt growth are poised to fail after the opposition rejected the plan, Prime Minister Petr Necas’s party said.

Necas has proposed legislation to curb state spending if public debt reaches 45 percent of gross domestic product, requiring at least a balanced budget if the ratio is 48 percent, and capping it at 60 percent. The bill needs opposition votes in both houses of parliament to pass.

The opposition Social Democrats gave “a clear signal that they’re determined to spend after the next elections and they don’t want to have any limits for that,” Marek Benda, head of the parliamentary caucus of Necas’s Civic Democrats, told reporters today in Prague. “We don’t have any other choice but to accept it because, clearly, 120 votes in the lower house and three-fifths in the Senate don’t exist without their votes.”

The Social Democrats, which lead in opinion polls a year before elections, say the next government will need to increase spending to revive the economy after GDP contracted in the six quarters through March. While Necas is pushing for debt limits, the Cabinet is also preparing to ease its austerity drive, which it credits with helping to cut borrowing costs to record lows.

The U.K. and the Czech Republic were the only European Union members not to sign the bloc’s fiscal compact, a treaty that stiffened budget rules meant to stabilize the euro, as Necas said the country will adopt its own debt brakes. The lower house of parliament may discuss the debt bill this week.

EU Ceiling

After cutting investment and raising taxes to bring the fiscal deficit below the EU limit of 3 percent of GDP, the government predicts this year’s shortfall will be 2.8 percent, widening to 2.9 percent in 2014.

The deficit was 4.4 percent of GDP in 2012, less than planned, and would have been 2.5 percent without one-time items such as a $3 billion settlement with churches for property confiscated under the former communist regime.

The next government’s main goal will be to help revive the $217 billion economy and create jobs, Lubomir Zaoralek, a member of parliament for Social Democrats, said today, telling reporters the rules would “tie the hands of the future government.”

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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