Czech govt coalition fails to agree on VAT hike

Kateřina Eliášová
20. 7. 2011 15:08
Public Affairs, junior member of three-party center-right coalition, opposes VAT hike
Czech Finance Minister Miroslav Kalousek, the author of the 2012 budget draft
Czech Finance Minister Miroslav Kalousek, the author of the 2012 budget draft | Foto: Jan Langer

UPDATE The Czech government coalition failed to reach an agreement on a planned VAT increase at today's meeting.

Czech Finance Minister Miroslav Kalousek (TOP 09) presented a proposal to increase the VAT rate to 19 percent.

However, the plan was opposed by Public Affairs, a junior member of the three-party center-right coalition. Public Affairs said they would support the VAT increase only if the government also introduced higher taxes for the rich and companies. This proposal was opposed by the right-wing Civic Democratic Party (ODS), the largest government member, and conservative TOP 09.

Due to the absence of agreement on the VAT increase, the 2012 budget deficit is expected to reach CZK 105bil.

Prague - Czech Finance Minister Miroslav Kalousek (TOP 09) presented today a draft budget for 2012, at the meeting of Czech economy ministers. Aktualne.cz, a Czech on-line daily, has the proposal at their disposition.

The draft tries to appease the education and transport ministers, both members of Public Affairs, a trouble-making junior member of the three-party center-right coalition.

Read more: Finance Minister: Further EUR 8bil cuts needed
Read more: In terms of political chaos, Czech Rep is new Italy

Compared to this year, the draft budget allocates CZK 10bil (EUR 408mil) more for the transport ministry (total budget CZK 30.6bil), and CZK 4bil (EUR 163mil) more for the education ministry (total budget CZK 121bil).

However, in exchange for the additional CZK 10bil for the transport ministry, Public Affairs would have to vote for the proposed VAT hike, which would enable the two ministries to lessen their budget cuts.

This is probably going to be a problem, because the populist-leaning party stresses that the VAT should not be increased. On the contrary, they call for a rise in the corporate tax.

Read more: After cabinet reshuffle, Czech gov crisis ends. For now

Finance Minister Miroslav Kalousek offers to his fellow lawmakers two variants of the VAT hike. One consists of increasing the standard VAT rate to 19 percent, leaving only medicaments, books, and newspapers in the lower VAT rate. Kalousek himself prefers this variant. The second one suggests 20 and 14 percent VAT rates. The government is expected to discuss both variants on Wednesday 20 July.

The 2012 budget draft plans a deficit of CZK 95bil. That is CZK 10bil less than originally expected.

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