PRAGUE (Reuters) - Czech Prime Minister Petr Necas will on Tuesday make possibly his last attempt to win the support of a rebellious party faction that is threatening to bring down his cabinet over a plan to hike taxes.
The Czech Republic has maintained investor confidence thanks to a relatively low debt load, but the center-right government is teetering on the brink of collapse, weakened by dissenters, austerity measures, graft scandals, and heavy losses in regional and upper house elections in the past two weeks.
The rebellious faction of about six backbenchers in Necas's Civic Democratic Party has been refusing the government's plan to hike the value-added and income taxes, which Necas says is necessary to cut the budget deficit to 2.9 percent of gross domestic product next year from 3.2 percent expected this year.
At 8 am (0600 GMT), a working group of Necas's' backers and the rebels will try to hammer out a compromise, ahead of a parliamentary session that starts later on Tuesday and should debate the tax bill, with the final vote possible as soon as Friday.
In an attempt to force the rebels back into line, Necas tied the vote with a confidence motion in his cabinet. The rebels, whose votes Necas needs to secure a majority, have so far not blinked, saying tax hikes would anger voters.
"Moving away from our agenda, not keeping our word leads to shameful election results and now the issue is not just the tax package but the future of the right in this country," one of the dissenters, Petr Tluchor, said on Monday.
The mood in the party has been souring in recent weeks as the rebel group showed no signs of being ready to compromise, party officials said, speaking on the condition of anonymity.
Party leaders have questioned whether the real motivation, rather than the tax laws that the rebels had backed in previous votes, was to remove Necas as prime minister or the party chief at a congress on November 2-4.
Necas may try to move the final vote on the tax bill, raising value-added tax rates by 1 percentage point to 15 and 21 percent next year and slapping higher taxes on top earners, until after the congress where he hopes to defend his post.
An opinion poll showed on Monday support for the ruling party has dropped to 16.5 percent, its worst in 15 years.
If the government falls, parliament may agree to call an early election. Alternatively, parties may try to forge a new coalition, but Necas as well as his coalition partner, the conservative TOP09, and the center-left opposition have all insisted on an election if Necas loses the confidence motion.
Center-left opposition leader Bohuslav Sobotka, whose Social Democrats lead opinion polls by a wide margin, told Reuters in an interview that an election could take place in early 2013.
His party's policies include hiking taxes for corporations and top earners, raising the overall tax intake by about 3 percent of gross domestic product from the current 34.7 percent.
(Additional reporting by Robert Muller; Editing by Jon Hemming)