Czech government survives confidence vote over tax hikes

Reuters News
Posted: Nov 07, 2012 8:27 AM

PRAGUE (Reuters) - The Czech center-right government survived a confidence vote on Wednesday when the lower house of parliament approved a package of tax rises that will be used to cut the 2013 budget deficit.

The approval came after Prime Minister Petr Necas put down a rebellion in his party over the tax rises. Support for his government has shrunk to a minority in the 200-seat lower house, which leaves it in a weak position to face more votes over its fiscal plans.

The tax package, expected to bring 22 billion crowns ($1.11 billion) in new revenue, will allow the government to cut the total fiscal gap below the European Union-prescribed 3 percent of economic output next year.

Necas has been struggling to keep afloat his cabinet, unpopular due to two years of austerity and a series of corruption scandals.

His three-party coalition holds only 99 seats after defections this year and needed independent votes to pass the tax package on Wednesday, which it won with a 101-93 vote.

The next test is whether the cabinet can win the 101 votes needed in the chamber to override a veto from the opposition-controlled Senate of its flagship bill to return billions of dollars worth of confiscated church property, and to defeat a presidential veto of a pension reform implementation bill.

Necas reached a deal late on Tuesday that ended a small rebellion in his party by deputies that argued tax rises were wrong for the economy and went against party pledges to voters.

The government's two-year austerity drive has brought debt costs to an all-time low but has also depressed domestic demand in an economy that has been in recession since late 2011, the worst performance in central Europe.

The tax package includes a 1 percentage point increase in the country's two value added tax rates, to 15 percent and 21 percent. It also introduces an extra 7 percent tax for people earning more than 4,000 euros a month.

(Reporting by Robert Mueller; Editing by Pravin Char)