CZECH REPUBLIC: Czech Prime Minister Necas under threat after failed vote to hike taxes

Record ID: 327839

  • Title: CZECH REPUBLIC: Czech Prime Minister Necas under threat after failed vote to hike taxes
  • Date: 6th September 2012
  • Summary: PRAGUE, CZECH REPUBLIC (SEPTEMBER 5, 2012) (REUTERS) WIDE OF CZECH PARLIAMENT IN SESSION PARLIAMENT CHAIRMAN MIROSLAVA NEMCOVA ANNOUNCING VOTE ON GOVERNMENT'S BILL TO RAISE SALES AND INCOME TAXES VARIOUS OF MPS VOTING MIROSLAVA NEMCOVA ANNOUNCING VOTE RESULTS MPS APPLAUDING CZECH PRIME MINISTER PETR NECAS ADDRESSING MEDIA DURING NEWS CONFERENCE (SOUNDBITE) (Czech) CZECH PRIME MINISTER PETR NECAS SAYING: "The government of the Czech Republic will connect the vote (on the tax hike) to the confidence vote." PEOPLE LISTENING (SOUNDBITE) (Czech) CZECH PRIME MINISTER PETR NECAS SAYING: "Without this package, the budget deficit would deepen by 25 billion crowns next year. Without approval of this package, it is impossible to pass a budget draft for next year with a deficit not exceeding 100 billion crowns, and the overall public sector deficit cannot be below 3 percent of GDP." PRAGUE, CZECH REPUBLIC (SEPTEMBER 6, 2012) (REUTERS) NECAS ARRIVING FOR CABINET MEETING MINISTERS ARRIVING NECAS AT CABINET MEETING MINISTERS AT MEETING TALKING VARIOUS OF MINISTERS AT CABINET MEETING
  • Embargoed: 21st September 2012 13:00
  • Keywords:
  • Location: Czech Republic
  • Country: Czech Republic
  • Topics: Economy,Politics
  • Reuters ID: LVADPO9N2Z5EEAC062U28Q7NNY0B
  • Story Text: The Czech parliament's lower house rejects the centre-right government's plan to raise sales and income taxes, threatening the fate of Prime Minister Petr Necas who insists the hikes are necessary to cut the budget deficit.


    The lower house of the Czech parliament rejected the centre-right government's plan to raise sales and income taxes on Wednesday (September 5), threatening the fate of Prime Minister Petr Necas who insists the hikes are necessary to cut the budget deficit.
    Necas has pushed through several rounds of austerity measures even as the central European country's economy dropped into recession last year, and plans to put the failed tax bill to another vote which will be tied to a confidence motion.
    The plan fell through in the lower house by a 94-101 vote after Necas lost the support of a handful of his own lawmakers who said the latest tax hikes go against the grit of right-wing policies.
    Necas said he was open to discussions with the rebels but he saw little room for changes, and said he was confident the original bill would go through.
    The two-year-old government plans to immediately resubmit the bill, proposing a 1 billion-1.4 billion euro ($1.26 billion-$1.76 billion) per-year hike in value-added, personal income and other taxes.
    "The government of the Czech Republic will connect the vote (on the tax hike) to the confidence vote," said Necas after parliament rejected the bill.
    "Without this package, the budget deficit would deepen by 25 billion crowns next year.
    Without approval of this package, it is impossible to pass a budget draft for next year with a deficit not exceeding 100 billion crowns, and the overall public sector deficit cannot be below 3 percent of GDP," he added.
    Necas, a political veteran and plasma physicist by training, won a 2010 election after warning Czechs they could go the way of Greece if they failed to tighten their belts. He has won plaudits from investors and presided over record low debt costs.
    But his policies have also driven consumer confidence among the traditionally thrifty Czechs to its lowest levels in more than a decade, extending the recession. Gross domestic product dropped by 1.2 percent year-on-year in the second quarter, lagging growth in neighbours like Poland and Slovakia.
    Regardless of the fight over taxes, the lower house approved on Wednesday a plan to slow down the growth in pensions in the next three years, another austerity measure.
    Necas' coalition has shrunk to 100 votes in the 200-seat lower house and, even under ideal circumstances, he needs the backing of independents to push through legislation.
    The rebels, backed by President Vaclav Klaus, reject the planned one percentage point VAT hike, saying it would strangle an economy that needs stimulus rather than more austerity. Many private sector analysts share that view.
    If Necas's government fell, it could be replaced by another administration -- which some analysts say may be the aim of the rebels -- or parliament could vote to hold early elections.
    There is however little appetite for early polls among the government parties, including the rebellious group, given the sharp drop in their popularity caused by two years of austerity measures and a string of graft scandals.
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