Government under pressure to make concessions on pension reform package

Government moves to marry pension reform and large hikes in Value Added Tax are looking increasingly ragged. Leaders of the main coalition parties are meeting on Thursday to decide their final stance over what was supposed to be an already done deal. And the increasingly under pressure finance minister has walked into a row with editors of newspapers and news weeklies over the impact of the VAT hike on the press.

Miroslav Kalousek, photo: CTK

For many days now Prime Minister Petr Nečas and Finance Minister Miroslav Kalousek have tried to stick to the line that the government’s flagship pension reform financed by scrapping the lower 10 percent VAT rate and raising the tax to a near uniform 20 percent is a cut and dried deal.

But that line has all but dissolved under the weight of the assault upon it from within the government coalition and without. A clear admission of that is Thursday’s meeting of the leaders of the three government parties. The meeting was originally called to discuss health reform but that has been set aside as they scramble to put a lid on the overflowing pension reform and VAT debate.

The original clear lines of the proposal to allow some citizens to opt out of the state pension system by launching private pension funds with the weakened public system bolstered by higher VAT payments now looks unsustainable.

The sharp jump to a 20 percent tax on almost all goods bought and sold appears too much for many people to swallow.

The chamber of commerce, normally a natural ally of the centre-right coalition, has said the VAT hike is excessive and suggested the uniform rate should be set at 17 percent.

A succession of ministries have come forward pointing to the massive holes in their budgets that the higher sales tax would spark. And from up on high, from Prague Castle President Václav Klaus has rained down his own verbal criticism on the haste with which the reform was conceived and the way it has been presented.

Within the government, junior coalition party, Public Affairs, is calling for part of pension reform to be paid for by taxes on betting, saying the move could happily kill two birds with one stone.

Illustrative photo: Archive of Czech Radio - Radio Prague

The party also seems to be taking the lead in pushing for VAT to be leveled off at the less ambitious rate of 18 percent with the handful of exemptions on bread, potatoes and other basics sacrificed as part of the price. But the quantity of opinions from the party about the precise format of the reform almost seem to outnumber their lower house total of 24 lawmakers.

Walking into Thursday’s crunch meeting, the finance minister is trailing another damaging row in his wake. Newspaper editors say the minister told them he had a secret recording of a meeting between them discussing the impact of the VAT hike on the press and how to counter it. They say he threatened to release it on public television. The minister denies any knowledge of the threat or recording.

One of the editors at the centre of the row, Dnes’ Robert Čásenský, says their opposition to the reform was already and about to be made very public.

Photo: archive of ČRo 7 - Radio Prague

“I am convinced, and this was the subject of the meeting, that there are very good reasons why VAT should not be raised to 20 percent. There is no secret about this. The minister knows this because other colleagues from the press, including myself, have repeatedly stated this. Besides, one of the points that was agreed was to send a joint declaration to politicians which will go out today and tomorrow, where everything is set down.”

His paper traditionally backs the government, but with friends like this that there is no need for enemies.