Czech left's leader says "deadly cuts spiral" must end

Reuters News
Posted: Mar 16, 2013 8:31 AM
Czech left's leader says "deadly cuts spiral" must end

By Robert Muller and Jason Hovet

OSTRAVA, Czech Republic (Reuters) - The Czech Republic's likely next prime minister says he plans to increase taxes on big firms and banks and put new emphasis on creating jobs to pull the economy out of a "deadly spiral".

Bohuslav Sobotka, re-elected on Friday as chairman of the opposition Social Democrats, also reaffirmed his openness to a deal with the mostly unreformed Communists, a once unthinkable approach in the former Soviet bloc country.

The Social Democrats enjoy a commanding lead in opinion polls and are on target to win a parliamentary election in mid-2014. That would extend a recent trend in former communist Central and Eastern Europe, where frustration with austerity has pushed several governments from power.

Sobotka said that with unemployment at a record high above 10 percent, according to analysts' estimates, creating jobs was just as important as controlling the budget deficit.

"The deficit is not an idol; a government must also take care of employment and living standards," he told a two-day party congress ending on Saturday.

In an interview with Reuters, he said the primary goal was to keep the public sector deficit below 3 percent of Gross Domestic Product.

But he added: "We want to change economic policy so that the single goal is not only lowering the deficit but (there is) a second goal of employment."

The center-right government of Prime Minister Petr Necas plans to cut the deficit to 2.9 percent this year, below the European Union's 3 percent limit, from 3.5 percent in 2012.

But it has lost popular support because of a series of sales and income tax hikes, and is limping into its final year of rule with its once-record parliamentary majority now transformed into a minority after a junior coalition party broke up.

The economy probably started 2013 with a seventh straight quarter of either contraction or stagnation, according to independent analysts.


The country needs to "get out of a deadly spiral of blanket cuts and economic decline," Sobotka told 600 party delegates at a convention center built inside a former gas container at an ironworks in Ostrava, 370 km (230 miles) north-east of Prague.

He said in his speech that his future government would tax big firms and banks more, but did not offer details. A major tax overhaul due by 2015 would re-introduce progressive income taxes but probably not cut sales tax, which rose under Necas.

Voters across Europe are showing their frustration with years of austerity, with protests toppling governments in Bulgaria and Romania.

In neighboring Slovakia, Socialist Prime Minister Robert Fico swept to power in 2012 with promises to cut the budget by taxing the rich and fighting for the common man -- a feat the Czech Social Democrats are hoping to match.

Sobotka said his party would abolish the Necas government's introduction of private pension accounts to which people can divert a portion of their social security tax. It would cancel fees for visits to the doctor, and raise the minimum wage.

The Social Democrats won regional elections last October and hold a majority in the upper house Senate, but have not been in government since 2006. The party holds a commanding 24 to 29 point lead over the ruling parties in opinion polls, while the Communists -- the other major leftist party -- have jumped to second in some surveys.

This makes the Communists a potential partner for the Social Democrats after the 2014 election, which has raised old fears for many and has led to the strongest anti-Communist protests since the party was toppled in the 1989 Velvet Revolution.

Sobotka said the Social Democrats would not form a government with the Communists but could create a minority government backed by the party. In the Czech political system, parties generally need coalition partners or deals with other parties in order to govern.

"Our experience with totalitarian rule is so serious that we will not allow anything that could bring back memories of the past regime. That worry is misplaced," Sobotka said.

The Social Democrats have had a ban on cooperating with the Communists at national level since 1995. Easing that taboo could allow a political consolidation and end years of unstable rule where cabinets with a shaky power base were repeatedly unable to push through their full agenda.

(Writing by Jason Hovet, Editing by Mark Trevelyan)