Tax reform at the centre of interest

Martin Jahn, photo: Zdenek Valis

Amidst the drawn out government crisis in the Czech Republic, tax reform has suddenly become the battlefield on which the ailing ruling Social Democrats and the opposition Civic Democrats are fighting for supporters and potential voters. Indeed, the embattled Prime Minister Stanislav Gross wants to link a confidence vote in his Cabinet to a proposed bill on lower taxes. It's an attempt to show the Social Democrats as the party of fiscal reform, and put pressure on the party's partners in the rapidly unravelling coalition to rally again behind them.

Martin Jahn,  photo: Zdenek Valis
Although the Czech Republic is mired in a drawn out political crisis, economic results have been highly encouraging and the country's fast economic growth is enabling the two main protagonists on the Czech political scene -the ruling Social Democrats and the opposition right wing Civic Democrats to vie for public support in a language that everyone can understand: lower taxes.

The Civic Democrats are proposing a flat tax rate at 15 percent, arguing transparency and low administrative costs. Although the proposed tax reform would affect almost all strata of society, people with a higher income would have more to gain.

The Social Democrats, on the other hand, have outlined a more complicated tax reform that would reduce the tax burden above all for the poorest, and for people with middle incomes - under 30, 000 crowns a month - targeting the party's potential voters.

With this tactic the party is aiming to kill two birds with one stone. It wants to make it as difficult as possible for MPs to raise their hands against such a proposal and by doing so bring down the government. Then, if the government falls as a result of the bill failing, the Social Democrats will be able to base their election campaign on the claim that it was the other parties that blocked much needed reform. In a further effort to take the wind out of the sails of the opposition Civic Democrats, the deputy prime minister for the economy Martin Jahn has unexpectedly proposed taking the tax reform even further - with generous cuts that would affect the high income groups as well as the poor and middle classes.

In addition to individual income tax cuts, he proposes corporate tax cuts to attract foreign investment and tax exemptions which would apply not only to companies from EU states but also to other countries. The opposition Civic Democrats are crying foul play,arguing that Jahn's proposal comes close to their own,only with higher administrative costs and claiming that no matter how good a tax bill the Social Democrats produce it will never compensate for the PM's lack of credibility.

Bohuslav Sobotka,  photo: Zdenek Valis
Finance Minister Sobotka's proposal: cutting the lowest rate to 12 percent / for annual income up to 121, 200 crowns / reducing the 20 percent rate to 19 percent / for annual income between 121, 200 and 218, 400 crowns/ and maintaining the other two rates 25 and 32 percent, and the income to which they apply unchanged.

Minister Jahn's proposal: reducing the lowest tax rate from the current 15 to 12 percent, replacing the 20 and 25 percent rates by a single rate of 15 percent and cutting the 32 percent rate to 24 percent.

Opposition Civic Democrats: a flat rate at 15 percent