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Czech public finance reform likely to make it through parliament

A package of economic reforms on which the Czech Republic’s centre-right ruling coalition has based its future are likely to make it through parliament by the slimmest of margins, reports said Wednesday. 

Following last-minute talks, the coalition has secured 101 votes in the 200-strong chamber, Czech press reports said. The leftist opposition has again vowed not to back the reform bills. The coalition has so far failed to enlist Christian Democratic parliamentarian Ludvik Hovorka who opposes planned changes in health care. But the government made sure that two opposition renegades, Milos Melcak and Michal Pohanka, who had already helped the weak coalition to pass a confidence vote in January, will support the bills.

The Czech parliament is expected to vote on the reforms on Tuesday next week, CTK news agency reported. If passed as expected the belt-tightening reforms would introduce changes to taxes, health care, pensions and various benefits with an aim to tame the state’s sprawling budget deficit to 3%. If not, the failure would likely topple the seven-month-old government. Late on Tuesday, the coalition agreed to a compromise on income taxes, which had proved the greatest stumbling block to the reforms package.

According to the latest plan, Czechs are to pay a 15% income tax in 2008 from what is billed a super-gross wage - a gross wage and health and welfare insurance payments. The real taxation would amount to some 23%, reports said. In 2009, the income tax would drop further to 12.5% paid from the super-gross wage, which would translate to real taxation of 19%. Corporations would pay 21% tax on their incomes in 2008, 20% in 2009 and 19% in 2010. However, to make up for the loss in personal income tax without raising the country's budget deficit, the cabinet also plans to cut tax credits for children and stay-at-home spouses.

International institutions such as the World Bank have urged former communist Central European countries to continue economic reforms to keep their booming economies on the growth track. Nevertheless, the new EU members, often described as undergoing accession blues, have been slow to curb spiraling public spending. (