PM, finance minister, scramble to reach deal or find alternative to tax package

Czech Prime Minister Petr Nečas is facing arguably his biggest political hurdle since taking office: to convince rebel MPs from within his own party to toe the line on the government’s tax package or risk the future of the centre-right cabinet. But after talks on Tuesday saw no breakthrough, the prime minister and other members of his government scrambled for alternatives to avoid the government’s fall.

Petr Nečas, Miroslav Kalousek, photo: CTK

Prime Minister Petr Nečas has admitted he would rather his party go into opposition than “rule in agony” but there are no signs he is giving up on the continuation of the centre-right coalition yet. Ahead of a meeting between a party work group and six Civic Democrat rebels on Tuesday, he and others such as the rebels’ Petr Tluchoř expressed the hope a deal could be reached. But it didn’t happen.

At stake is the government’s tax package, aimed at raising the VAT rates as well as raising taxes on income tax for top earners, a package the government insists it needs to meet its fiscal target: namely, to bring the gap in public finances next year to below 3 percent of GDP. The rebels have not budged on their position from the start, arguing tax hikes went against promises to voters and the Civic Democrats’ programme. On Tuesday, they reiterated those views and held their ground. Here’s what Petr Tluchoř had to say:

“Unfortunately there is no change in position or agreement and on behalf of the work group chairman Stanjura said the talks had not been successful.”

Petr Tluchoř, photo: CTK

The failure to reach an agreement has put the government one step closer to potential collapse. The prime minister, in the hopes of cowing dissent, has tied the passing of the tax bill to a vote of confidence: but his gambit doesn’t appear to have worked. Enjoying only a razor-thin majority in the Chamber of Deputies, the government cannot survive without rebel support. That led the prime minister to come up with a number of changes ahead of Wednesday’s second-reading, such as proposing to limit the income tax hike for higher earners to just one year. The rebel MPs themselves on Wednesday will also put forward changes of their own.

The country’s finance minister, Miroslav Kalousek, meanwhile, hasn’t waited, on Tuesday making clear he would opt for a Plan B: to withdraw the proposed state budget for 2013 – which counted on the tax package’s passing – for revision within 30 days. The aim, he made clear, was to review spending in the budget and consider additional cuts in the public sector to make up for the gap of the missing tax hikes. Finance Minister Kalousek said this:

“A Swedish-style public service for Romanian-style taxes as proposed by MPs Fuksa and Šnajdr, that’s not something I know how to do.”

Photo: archive of CRo 7 - Radio Prague

Whether that or other changes being proposed will satisfy rebel MPs within the Civic Democratic Party and indeed pass, or whether some other deal can still be reached is far from clear. What is, is at the moment the government is the easiest of targets. Eying the possibility of early elections, the Social Democrats took aim on Tuesday, accusing the coalition of not being able to govern and of risking a provisional budget for next year. The Communists meanwhile – resurgent in recent regional elections – also pulled no punches, charging the government was not serving the country but merely hanging on at all costs.