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Czech Social Democrats Get Cabinet Go-Ahead as Tax Clash Lingers

Nov. 21 (Bloomberg) -- The Czech Social Democrats received a green light from President Milos Zeman to form the country’s ninth government in a decade as they struggle to iron out differences over tax policy with their potential partners.

Zeman, who irked political parties in June by hand-picking a technocrat administration without parliamentary backing after the previous government collapsed in June, asked Social Democrat leader Bohuslav Sobotka today to lead cabinet talks. His party won an Oct. 25-26 election. Zeman, who holds the right to choose the prime minister, hasn’t said whom he’ll name.

“There is a realistic option of forming a majority coalition government,” Sobotka said in a televised news conference after meeting Zeman. “If everything goes well, it is a realistic ambition to submit a proposal to the president for a new government by the end of the year.”

The ex-communist European Union member is struggling to end the political gridlock that ensued after Premier Petr Necas’s cabinet collapsed in an illegal spying and corruption scandal. The Social Democrats are seeking a way to rule with the ANO party, backed by billionaire businessman Andrej Babis, and the Christian Democrats. Both parties have rejected proposals to raise taxes to finance more state spending.

The Social Democrats, who emerged from the election with a record-low winning tally, and the runner-up ANO have agreed to keep the fiscal deficit below the EU’s limit of 3 percent of economic output. They differ on how to finance state spending aimed at re-igniting economic growth following the country’s longest-ever recession.

Tax Talk

After ANO proposed this week to freeze taxes for two years and seek savings in the state’s operations, Sobotka asked the party for its calculations on how it could finance the Social Democrat’s priorities of raising spending on pensions and education and scrapping doctor fees.

“We have talked a lot about taxes, which is certainly an important issue, but we need to continue discussing other themes that will determine the future government’s policy as well,” Sobotka said. “The key priority is a new economic policy that will restart growth and support employment.”

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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