The Czech government on Wednesday approved the framework of the 2012 state budget counting on a deficit of 105 billion crowns or 3.5 percent of GDP. Although this draft proposal meets the finance minister’s original goal, Wednesday’s cabinet session was marked by discord and none of the three ruling parties appeared to be entirely satisfied with the agreement reached. For some it was too little, for others way over the top.
Petr Nečas, photo: CTK
The proposal envisages a deficit of 105 billion crowns and reckons with two VAT rates of 20 and 14 percent, the lower rate having been upped from 10 percent this year. In 2013 the VAT is to be unified at 17,5 percent. Bringing next year’s deficit in public finances down to 3,5 percent of the GDP is in line with the government’s long term fiscal strategy and could have been viewed as a success, but Prime Minister Petr Nečas was clearly far from happy and at Wednesday’s press conference spent much more time dwelling on the proposal which had been rejected – one that envisaged a unified VAT rate at 19 percent which would have cut the public finance deficit to 95 billion crowns. Although this proposal had the support of the two stronger parties in the ruling coalition – the Civic Democrats and TOP 09– the junior Public Affairs swept it off the table saying it would make the middle and low-income groups of the population bear the brunt of the fiscal reform.
Vít Bárta, photo: CTK
When it was clear that the 19percent VAT rate would not stand any chance of passing through Parliament, the two stronger parties voted in favour of the original proposal, while the junior coalition party refrained from taking part in the vote.
Although it was outvoted, Public Affairs flexed its muscles, refusing to say whether its deputies would support even the more moderate VAT hike in the lower house. The party’s parliamentary group leader Vít Bárta said more concessions would have to be made for that to happen.
“We are decidedly unhappy with the finance ministry’s proposal and expect a serious and responsible debate in more detailed talks regarding finances for individual ministries.”
Photo: Barbora Kmentová
Mr. Bárta was referring to further cuts in public finances which the finance minister said would inevitably accompany the more moderate VAT hike. Consequently, more battles lie ahead in the lower house before next year’s budget acquires a definitive shape. Public Affairs which would have preferred progressive taxation and higher corporate taxes as a way of cutting the public finance deficit, is likely to eventually accept the more moderate VAT hike and support the budget, but not before it has got its pound of flesh – which is likely to be more money for its cabinet ministers.
And although the two stronger coalition parties are now presenting this as a thwarted opportunity to make more significant progress in consolidating the country’s finances, there are many who wonder whether the finance minister did not up the stakes at the last minute in order to secure smooth passage for his original proposal.
