Embattled PM backtracks on tax-reforms in the wake of election defeat

The ruling parties’ humiliating defeat in the weekend regional and first round of senate elections have clearly shaken the government’s resolve to effect painful reforms at any cost and left the prime minister fighting not just for the future of the centre-right government but his own place at the head of his party.

Petr Nečas, photo: CTK

“Revision” has become the operative word for the centre-right government in the wake of their election debacle at the weekend. Prime Minister Petr Nečas, who has seen the coalition’s parliamentary majority in the lower house shrink drastically in recent months and who faces a rebellion by his own party members, conceded defeat on Monday following a stormy session with regional leaders demanding change.

“We have to take into consideration that our coalition potential has shrunk. That is the reality and we need to take it into account. We have a razor-thin majority in the lower house and that only on condition that the Civic Democrats vote as one man. I have therefore proposed a change to the government’s tax package that I think may be acceptable not just for the Civic Democratic Party but for our coalition partners as well.“

According to information leaked to the press by sources inside the party the compromise rests in just one VAT bracket being raised by one percentage point rather than both. Moreover, the prime minister has also publicly expressed readiness to revise some steps in the area of social welfare benefits – in what is seen as a concession to disgruntled voters who expressed their opposition to the government’s harsh austerity measures in the strongest way possible – with an unprecedented show of support for the Communist Party.

Miroslav Kalousek, photo: Filip Jandourek

The drubbing the ruling parties received in the elections has also tempered the zeal of the second strongest party in government TOP 09 in pushing through government reforms regardless of public opposition. TOP 09 leader Karel Schwarzenberg said shortly after the results were announced that the ruling parties must find a way of alleviating the impact of reforms on the socially weakest groups of the population. Finance Minister Miroslav Kalousek, who earlier wouldn’t budge an inch from the government’s fiscal target - of bringing the gap in public spending under 3 percent of the GDP next year – said Mr. Schwarzenberg had given him the difficult task of finding a way to alleviate the plight of pensioners with no family to support them. The finance minister also voiced readiness to discuss the prime minister’s tax-package compromise, noting that the fallout in the state budget would be 10 billion crowns and the money would have to be found somewhere else.

However, it is fairly obvious that the government’s problems run deeper than finding the money to temper some of its reforms. The prime minister’s party is in a deep crisis with the regions calling not just for a change of leadership but a change of direction in party policy. Marek Šnajdr, one of the Civic Democratic Party rebels on Monday indicated big changes on the horizon for the strongest party in government which could have serious repercussions for the whole centre-right coalition.

Marek Šnajdr, photo: Filip Jandourek

“The government’s future existence and its credibility really does not hang on one VAT bracket. The defeat we suffered in the weekend elections was not the kind one would expect a ruling party to suffer when effecting far-reaching reforms. It was far more serious. It was a clear signal from voters that we cannot disregard. If the Civic Democrats have spent the past 20 years advocating certain values such as minimum state intervention, responsibility of the individual and no tax hikes we should think about how those values correlate with the present government’s priorities.“

The Civic Democratic Party’s national conference –which the embattled prime minister has just brought forward by a month-is to take place on the first weekend of November. If the government survives in office there is a strong likelihood it will continue under a different prime minister.