Embattled prime minister fighting to keep fiscal reforms on track

Petr Nečas, photo: CTK

The Nečas cabinet suffered its first significant defeat in its consolidation drive on Wednesday. The lower house rejected a crucial part of its austerity package –a controversial bill on tax hikes aimed at bringing the gap in public finances below 3 percent of GDP in 2013. The move has left the prime minister fighting not only for the future of his reform cabinet but primarily his own future as the head of the Civic Democratic Party and the government.

Petr Nečas,  photo: CTK
The prime minister, who has acquired a reputation of relentlessly ploughing ahead with fiscal reforms despite a series of crippling corruption scandals and waning popularity, on Wednesday voiced his determination to keep the fiscal reforms on track or let the government fall.

“Even the best tennis player occasionally gets a serve wrong and needs to serve again. That is what we are about to do.”

The centre-right government lost no time making good on this promise, sending the bill -unrevised - back to the lower house on Thursday morning, and linking it to a vote of confidence.

However, despite the prime minister’s uncompromising message, it is clear that the six rebels within his own Civic Democratic Party have won important ground and the prime minister is not fully prepared to call their bluff. Speaking to journalists late Wednesday Mr. Nečas said the bill would be open to revision on condition that the proposed changes were acceptable to all coalition parties.

Petr Tluchoř,  photo: CTK
This is clearly an admission that the prime minister’s earlier strategy of making the rebels accept the tax hikes or bear responsibility for the fall of the government is seen as highly unreliable. The rebel deputies are about to get their way though neither side appears to be quite sure what concessions they will demand.

The six Civic Democrats who voted against the tax hikes have few ideas to offer when it comes to where else the 25 billion crowns – that the tax hikes are expected to generate -are to be found. Deputy Petr Tluchoř, who voted against the bill on the grounds that raising taxes goes against the party’s policy programme, said the money should be saved on the expenditures side –citing pensions, social welfare benefits and the health sector. All three are highly sensitive areas where severe cuts have already been made.

Meanwhile, the Civic Democratic Party’s coalition partners TOP 09 and LIDEM are far from happy to have the hard-won agreement on the proposed austerity measures reopened. Deputy prime minister Karolina Peake from LIDEM said there was a real danger of the agreement collapsing.

Miroslav Kalousek,  Karolína Peake,  photo: CTK
“The 1 percent tax hike in the lower and basic VAT rates was not something we were enthusiastic about in the first place, but we agreed to it on the argument that it will bring the necessary funds to state coffers. To open this bill is to tamper with a very fragile compromise that we worked long and hard to reach.“

Finance Minister Miroslav Kalousek from TOP 09 whose fiscal consolidation plan is being unexpectedly scuppered by the rebellion in the Civic Democratic Party said the Civic Democrats needed to resolve their problems fast.

“If a number of Civic Democrat deputies insist on holding this course and voting with the opposition then the government will lose its majority in Parliament and a different political solution will have to be found.”

Photo: CTK
However all parties involved in this dispute know there aren’t many political solutions on the horizon. Given their low public support ratings it would be suicidal for any of the coalition parties to support early elections meaning that some kind of compromise will have to be found which would allow the present government to continue in office with or without the prime minister –whose political future now appears to be very much on the line.