Czech Coalition Survives Tax Package Rejection

by Ulrika Lomas, Tax-News.com, Brussels

20 September 2002

Vladimir Spidla, the Czech premier, has succeeded in bringing his unruly coalition partner the Freedom Union under control after its former leader, Hana Marvanova, last week derailed the government's laboriously assembled flood-relief tax package by voting against it in Parliament.

Now the Freedom Union is signing a guarantee that its deputies will back all future key legislation agreed by the three-party coalition, at the risk of losing its posts.

The coalition has 101 seats in the 200-member parliament, but failed to gather the needful 100 votes to pass the tax package because of Ms Marvanova's vote and because its former foreign minister Jan Kavan was in New York chairing the UN session on Iraq.

Mr Spidla says he will continue to submit the tax package until it is passed. The package includes measures to increase the top rate of VAT from 5% to 7%, hike consumption taxes on spirits and tobacco, and temporarily raise the highest rate of income tax from 32% to 35%. It is hoped that these emergency measures will raise some Kc100 billion ($3.3 billion), covering almost a third of the flood costs.

However, the package has been condemned by economists, who argue that the government should have considered reducing other spending or making use of privatisation receipts before putting up taxes.

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