Czech PM Faces Confidence Vote On Fiscal Package

by Ulrika Lomas, Tax-News.com, Brussels

10 September 2012

The Czech Republic’s centre-right coalition government led by Prime Minister Petr Necas is currently facing a new vote of confidence after the country’s lower house of parliament rejected its EUR1.4bn (USD1.79bn) fiscal consolidation package, providing for an increase in value-added tax (VAT) and for a new levy on top earners.

Rejected recently by the Senate (upper house), the package only received 94 votes in the lower house. To be approved, the text requires the backing of at least 101 deputies.

The government now plans to resubmit the text and to tie the package adopted back in April to a vote of confidence.

Designed to enable the government to reduce the public deficit to 3% of gross domestic product (GDP) next year, the government’s proposals include plans to increase by 1% from January 1, 2013, both rates of VAT, currently 14% and 20%.

Following the vote, Necas insisted that without the austerity package, it will not be possible to approve a state budget providing for a deficit of below 3% of GDP next year.

The idea of increasing the two VAT rates is fiercely opposed, however, by Czech President Vaclav Klaus, who urged parliament to reject the tax hikes, insisting that the measures will harm the country’s economy.

The central bank has also warned that the fiscal consolidation package will further depress household spending and rebels within the Prime Minister’s own party warn that raising taxes will merely serve to extend the recession.

No date has as yet been fixed for the second vote.

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