The Czech Republic’s biggest opposition party, the left-of-center Social Democrats (ČSSD), has called for a vote of no confidence in the shaky center-right coalition of Prime Minister Petr Nečas (Civic Democrats, ODS) following preparations for a new round of budget cuts and tax increases.
ČSSD leader Bohuslav Sobotka said in a news conference on Tuesday that the vote of no confidence should take place in March and, if successful, should pave the way for new parliamentary elections in October.
The no-confidence vote follows preparations by the government for more belt tightening and tax increases to keep the country’s budget deficit pared back given expectations of hesitant or zero economic growth this year.
Nečas warned Monday that the no or slow growth scenario this year would translate into a Kč23 billion shortfall in tax receipts and other earnings that will have to be made good in lower government spending to prevent the state deficit from exceeding 3.5 percent of gross domestic product (GDP) this year.
But the really flammable material coming out from Monday’s meeting of economic ministers were the follow-up preparations measures being prepared by Finance Minister Miroslav Kalousek (TOP 09) aimed at keeping the deficit down in the following years.
Options include a further hike in value-added tax (VAT) and two or three year a freeze on the automatic increase in pensions payments in line with the cost of living.
“This is a serious situation, we cannot hesitate or wait,” Sobotka said about the no confidence motion that his party — which polls show would easily win elections if held at this stage — will now prepare. Members of the lower house would have to decide whether they could support the center-right coalition which is less than half way through its four year term, he added.
‘This is a serious situation, we cannot hesitate or wait.’
“We consider that is necessary that every member of this house stands and says whether they will take responsibility for such government policies that lead us into debt, lead us to social division, leads us into poverty, and leads us to economic decline,” Sobotka added.
The ČSSD is the largest single party in the lower house with 56 seats in the 200-strong chamber. But even with the backing of its natural ally on the left, the Communist Party of Bohemia and Moravia (KSČM), with 18 seats, the Social Democrats fall well short of the 101 votes that would guarantee success of a no confidence vote.
Sobotka therefore targeted the smallest coalition government party and the one which appears most shaken by the latest cost cutting measures, Public Affairs (VV) with a call for it to throw its support behind the no confidence vote. That was the only way that the party could be loyal to the election pledges made when it swept into parliament for the first time in 2010, he said.
But while VV party leaders attacked some of the mooted cost cutting and tax raising measures rolled out on Monday, they held back from lining up alongside the opposition and promising to bring down the government. “For the government to fall now would be sheer madness,” commented party chairman Radek John.
The party, elected on an anti-corruption platform but tarnished by corruption scandals, would be wiped out if elections were held any time in the near future and fail to get past the 5.0 percent threshold for entering the lower house according to most opinion polls.
But VV said it could not accept a freeze on pension increases for the following years and would fight to keep lower levels of VAT on food, papers, books and drugs. Parliamentary group leader Vít Bárta — VV’s founder, paymaster and real power broker — said that cuts of Kč 4.5 billion this year the Ministry of Education budget were unacceptable. “We see education as the basis for a competitive country and as one of the most important pro-growth measures. We see this proposal of cuts from the Ministry of Finance as catastrophic, it threatens the stability of education in the country and the wages of teachers.”
Alternative options put forward by VV include higher taxes on gambling, a stepped up fight against the gray economy, tax amnesty for dodgers, and increased drawing on financial reserves in 2012, which the party says are at least Kč 10 billion higher than the Finance Ministry has outlined.
In spite of their explosive content, the cuts and tax raising options being worked on by finance minister Kalousek are far from being set in stone. The options for an increase in VAT include a single across the board rate of 19 or 20 percent, with the possibility of lower 14 percent for books and drugs. On the other hand, a more marked two-tier system of sales tax at 21 percent and 15 percent has also been suggested.
“There are a few options, we must first of all find a compromise,” said Nečas on Monday. “It should raise revenues by Kč18-20 billion with some divergence higher and lower,” the prime minister added. The debate on the precise steps to take was due to continue in March.
Self employed sacrifices?
While the austerity measures appear to have lined up prime minister and finance minister side by side for the moment, some of Finance Minister Kalousek’s wider tax reform measures could drive a wedge between them. The TOP 09 deputy leader announced on Czech Television late Monday that he would be seeking to sharply increase the tax burden on the self-employed, since, thanks to a series of advantages, they currently have a disproportionately light overall tax burden compared, for example, with those in fixed employment. That group, however, is often seen as the bedrock of ODS support with the party likely to fiercely resist any attack on their privileges.