RPT-FACTBOX-Key points of proposed Czech fiscal reforms

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The centre-right coalition government of Prime Minister Mirek Topolanek presented on Wednesday the final shape of fiscal measures aimed at cutting the budget deficit to 3 percent of gross domestic product (GDP) next year.

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The government aims to cut the deficit to 3 percent of GDP in 2008 and eventually 2.3 percent in 2010, according to national methodology, from 4 percent seen this year. Officials say EU-harmonised numbers are about 0.2 percentage points higher.

The fate of the reform is uncertain in the parliament which is evenly split between the government and the leftist opposition. Some government deputies have also threatened to vote against.

The following are selected proposals as presented by the government.

INCOME TAXES:

- Flat 15 percent tax rate on all personal income from 2008 to replace the progressive tax brackets with 12 percent as the bottom rate for low-income earners and 32 percent as the top one for high-income earners;

- Personal income tax base to be broadened to include social security and health insurance contributions paid both by employees and employers for their workers. The portion paid by employers now is 35 percent on top of gross wages;

- 'Tax abatement', sum to be automatically deducted from taxes, will be raised to 24,840 crowns per year from 7,200 crowns;

- Changes will mean savings for high earners and low earners, with middle-income earners gaining only a few dozen crowns per month or even ending up losing due to lower write-offs;

- Corporate income tax rate to fall to 22 percent next year, 20 percent in 2009 and 19 percent in 2010 from 24 percent now;

- Tax changes, on cash basis, will raise revenue by 9 billion crowns next year but cut revenue by 3.8 billion in 2009 and 28.2 billion in 2010;

- A cancellation of dividend, capital gains and property transfer taxes will be considered in the next reform stage for 2009 or 2010.

VALUE-ADDED TAX:

- Lower, preferential value-added tax (VAT) rate -- levied on essential items such as foodstuffs and medicine and other selected goods and services -- to rise to 9 percent from current 5 percent;

- Higher, base VAT rate to remain at 19 percent.

HEALTH CARE AND SOCIAL TRANSFERS:

- Changes include cuts to parental contributions, child benefits, birth and funeral contributions and other welfare;

- Plan sees saving 8.5 billion on social benefits next year, savings should rise by 2010;

- Savings of 9.2 billion in sickness benefits next year;

- Automatic indexing of benefits should be abolished;

- Patients will pay a 30 crown fee for doctor visits;

- No sick pay for first 3 days of illness.

OVERALL SAVINGS:

Finance Minister Miroslav Kalousek said the package would save 32 billion crowns in mandatory spending next year versus what would occur without reforms, and the cabinet would slash 15.5 bln in discretionary expenditure to cut the budget deficit to 3 pct/GDP next year, the first year of reform.

[Reuters/Finance.cz]