Fate of reforms uncertain ahead of crucial vote in Parliament

Michal Doktor and Vlastimil Tlusty, photo: CTK

The centre-right Czech government is holding intensive last-minute negotiations to secure support for a fiscal reform package that the prime minister has staked his political future on. The cabinet holds just 100 seats in the 200 member lower house and due to a number of last minute snags support for the reforms is far from certain.

Michal Doktor and Vlastimil Tlusty, photo: CTK
The government's fiscal reform package aims to cut the deficit in public finances to below 3 percent of GDP, which is one of the essential criteria for the adoption of the euro - one which the country has so far been unable to fulfill. The scale of this reform package is unprecedented and if approved it would affect all areas of life. It cuts benefits to parents on leave, sick-pay and other welfare provisions, introduces medical fees, raises sales tax on food and other basic items and would unify all personal income tax brackets at 15 percent next year, from up to 32 percent now. The income tax would be cut further to 12.5 percent in 2009. The corporate tax would fall to 21 percent next year -from the present 24 percent - and eventually to 19 percent in 2010.

Although the Greens and Christian Democrats expressed serious reservations with regard to the introduction of medical fees -an understanding was reached and all but one of their deputies have now promised to support the reform package. However a much more serious problem arose when six Civic Democrat Deputies led by former finance minister Vlastiml Tlusty announced late last week that they could not support the reforms because the re-balance in taxes would lead to a heavier tax burden for many people in 2009.

Mirek Topolanek, photo: CTK
Mr. Tlusty said this could be amended by reducing the planned tax rebate cuts - and cornered, just hours ahead of the crucial vote the prime minister made the concession. He promised that the tax rebate cuts would be amended in the Senate where the Civic Democrats hold a comfortable majority. However the deal has raised grumblings of discontent from the party's coalition partners - the Greens and Christian Democrats who point out that the amendment would mean a 35-billion crown loss for the state coffers which would have to be made up elsewhere - most likely from regional budgets. Also, having tested his strength and won, Mr. Tlusty is said to be pushing still further, demanding more and more concessions from the beleaguered prime minister. Exasperated Prime Minister Topolanek publicly accused him of wanting to bring down the government in order to satisfy his own ambitions.

Monday brought a fragile cease fire and a great deal of uncertainty about what is going on behind the scenes. If the reforms fall through on Tuesday the Prime Minister would very likely resign, bringing down the entire cabinet. And because new elections are hard to trigger, this would mean talks on a new government - based on the outcome of the last elections. Whether or not that happens rests largely on one man - the prime minister's main party rival Vlastimil Tlusty.