Czech parties announce details of coalition agreement, to target budget deficit within EU rules.

By bne IntelliNews December 16, 2013

The Czech Social Democrats (CSSD) announced on December 13 details of their coalition agreement with anti-corruption movement ANO and Christian Democrats that envisages the next government to keep the budget deficit below EU’s limit of 3% of economic output it the next four years.

The three-party government, expected to be appointed in January 2014, has pledged not to raise taxes next year to support the economy that emerged from a record-long recession earlier this year, the coalition pact published on CSSD’s website showed. In 2015 it may slap a levy on sectors such as banks and utilities that would raise some CZK 4bn (EUR 145mn) a year. As of 2015 it also plans to lower the sales tax on drugs, books, baby food and diapers by introducing a third VAT rate. Currently there are two VAT rates of 15% and 21%. Gambling taxes will be increased, while tax bonuses for self-employed individuals who post losses will be eliminated.

The new government will seek to gradually increase the minimum wage to 40% of the national average and cancel the pension reform introduced at the start of 2013 by the former centre-right government. The reform allowed workers to transfer part of their mandatory pension insurance payments to private funds. The change will not have a major impact because fewer than 100,000 people have so far joined the new pillar. The coalition partners also agreed to cancel the fees for visits to doctors.

Regarding spending, the new government will seek to boost investments in infrastructure, mainly on building roads and rail links and insulating buildings.

The coalition partners agreed to support the expansion of Temelin nuclear power plant only if the project is economically viable. The agreement does not shed light on whether the government will agree to provide guarantees on the prices of the electricity to be generated from Temelin’s new reactors .Temelin’s operator, state-owned CEZ, has said that it will continue with the project only if it secures state guarantees.

The coalition pact says that the government will continue with closer European integration and prepare the country for joining the eurozone, but no entry target date has been set.

The three parties control 111 mandates in the 200-seat lower house. This week they are expected to discuss the lineup of the future government. Bohuslav Sobotka, CSSD chairman and likely the next prime minister, wants to present his government to President Milos Zeman by the end of the year. The deal, if approved by Zeman, will end a political stalemate that has crippled policy making since June when the former centre-right government collapsed amid a bribery and spying scandal.

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