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.

Hold The Damn Vote Already
Derek Hunter

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)