Czech parlt panel proposes vote to reject reforms

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The Czech parliamentary budget committee adopted an opposition-led proposal on Wednesday to reject the government's package of tax and social reforms in a vote within the next month.

The committee was hearing proposals on amending the government's reforms, aimed at halting a rising fiscal deficit and putting euro adoption back on track.

Leftist opposition deputies found themselves in an unexpected majority on the 22-member committee -- split evenly between government and opposition members -- when one rightist deputy was absent, allowing adoption of the rejection.

The move is only a partial victory for the opposition because the government controls 100 seats in the 200-seat lower house and is expected to be supported by two leftist rebel deputies who helped approve the reforms in the first reading.

But the committee's proposal shows how fragile the government's hold on power is, with Prime Minister Mirek Topolanek having staked his administration's future on approval of the reforms.

Michal Doktor, a deputy for the ruling Civic Democrats, played down the importance of the setback the ruling coalition suffered at the powerful budget committee.

"It means nothing. This in no way changes the voting ratios in the lower house," he told Reuters. "Today's absence of a (Civic Democrat) deputy is absolutely tragic news for the coalition and the Civic Democrats, nothing else."

Finance Minister Miroslav Kalousek said on Wednesday he remained confident the package would be approved in the final reading before the lower house, which convenes on Aug. 14 to open second out of three required readings of the legislation.

"Do I look as though I am pessimistic (over the final vote)?" Kalousek said when asked by Reuters if the budget committee proposal concerned him. "Even the opposition was surprised it had a majority (on the budget committee)."

The package cuts back on benefits to parents on leave and other handouts and rebalances taxes, raising the sales tax on food and other basic items and unifying all personal income tax brackets at a single rate of 15 percent.

The Czech Republic, a European Union member since 2004, has enjoyed strong economic growth -- 6.4 percent last year -- but has failed to put its budgets on a sustainable path.

The government aims to cut the deficit to 3.2 percent of GDP in 2008 and, along with further measures to be introduced later, to 2.5 percent in 2010 from 4 percent seen this year.

The fiscal gap problems, stemming partly from increases in spending on social and welfare benefits enacted prior to the mid-2006 elections, forced policymakers to abandon an earlier goal to gain entry to the euro zone in 2010.

No new target euro adoption target date has been set.

Keywords: CZECH REFORMS/

[PRAGUE/Reuters/Finance.cz]