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| Out of crisis, Czech govt cements austerity drive |
| Prag, 11.04.2012 |
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| The Czech government approved a set of tax hikes and spending cuts on Wednesday, turning a crisis that had threatened to topple the cabinet into a leap forward in plans to meet European Union fiscal rules through unpopular measures.
The three ruling parties settled their worst row in almost two years in power on Tuesday, agreeing to cut almost $3 billion from the 2013 deficit and keep to an austerity drive that has hit economic growth as well as their popularity.
On Wednesday ministers agreed to a plan to cut the deficit by 56.9 billion crowns ($3 billion) next year, or about 1.5 percent of the country's gross domestic product. That will bring the budget shortfall to 2.9 percent of GDP, within the EU target level of 3 percent.
It then aims to cut the gap by 94.7 billion crowns in 2014, reducing the budget deficit to just 1.9 percent of GDP.
Prime Minister Petr Necas and Finance Minister Miroslav Kalousek have stuck to pledges to get the public finances under control even as debate rages across Europe over whether efforts to reduce public debts and deficits are stifling recovery.
"We must have stable public finances so that the whole economy will be stable, and from this it is possible to build healthy economic growth," Necas said.
"Encouraging growth by raising the deficit has clearly been shown to be unproductive and the wrong route."
The budget measures will involve spending cuts, including eliminating three ministries and raising pensions at a lower rate than previously planned.
But they also include the biggest round of tax hikes in years. Value-added tax rates will rise by 1 percentage point in 2013 to 21 percent and 15 percent, a new 7 percent "solidarity contribution" tax will be imposed on high-wage earners, and more will be levied on energy, wine and tobacco.
The cabinet also approved plans to introduce a constitutional debt ceiling but said details still need to be agreed, including with the opposition. Necas's party had proposed last month setting a debt limit at 45 percent of GDP.
The Czech Republic's national debt is equivalent to 41.2 percent of GDP - about half the EU average.
The spat in the centre-right government stemmed from demands for cabinet changes last week by centrist party Public Affairs, a parliamentary newcomer that has brought the coalition near collapse on several occasions.
Showing growing frustration, Necas quickly switched the focus of debate onto a decision to confirm savings measures that the junior coalition partner had resisted.
Necas had warned that the lack of agreement would trigger an early election in the country of 10.5 million as soon as June, giving an advantage to the opposition Social Democrat party, which leads Necas's Civic Democrats by 15 percentage points in polls.
AUSTERITY
While a steady flow of savings measures to reduce government bills has won the country a higher credit rating and near-record low bond yields, the cabinet believes more steps are needed to maintain market confidence amid the euro zone debt crisis.
Having already cut the deficit to a below target 4.8 percent of GDP in 2010, data this month showed the 2011 gap was just 3.1 percent, better than previous estimates of 3.7 percent and already ahead of the stated target for this year of 3.5 percent.
But poorer Czechs complain their living standards are suffering, and unions plan a nationwide protest this month.
Poor domestic consumption is weighing on the economy, which fell into a slight recession late last year, according to preliminary data, despite a record year for exports.
The Finance Ministry sees a stagnant economy this year before growth of 1.6 percent in 2013. Kalousek said the measures will shave 0.3 to 0.4 percentage points off growth each year.
"This is another thing undermining economic growth, but there are not many other alternatives," said Pavel Mertlik, chief economist at Raiffeisenbank in Prague.
Newspapers called the measures the largest tax hikes since the country split from former partner Slovakia in 1993. The leading mainstream daily Mlada fronta Dnes ran a headline about the coalition agreement saying: "They go on. You will pay."
Kalousek defended the measures. "Now we are not in a situation where we would be facing some short-term cyclical development," he said.
"We face a reality that for many coming years many other governments will have to cope with the fact that (budget) revenue will not be rising, but the pressure for social transfers due to the aging population will be rising. This is the outlook that will have to cope with." ($1 = 18.9971 Czech crowns)
(Additional reporting by Jana Mlcochova; Editing by Michael Winfrey and Stephen Nisbet)
PRAGUE (Reuters) odkaz na stránku |
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