Two Czech rebel MPs say will support govt reforms

...package will be approved by parliament in a vote expected by next week.

The centre-right government wants to rebalance taxes and cut social benefits to narrow the new EU member's fiscal deficit, which has ballooned despite fast economic growth and pushed the adoption of the euro into the next decade.

The cabinet has 100 seats in the 200-member lower house and has said it will seek an early election if its plan fails.

The two rebels, who had earlier supported the government in key votes, signed off on an amended version of the plan approved by the coalition late on Tuesday, after being offered additional concessions.

"Deputies Milos Melcak and Michal Pohanka are ready to support this agreement and this compromise and vote for its adoption in the lower house," the two deputies said in a joint statement with Prime Minister Mirek Topolanek.

One coalition deputy has said he will not support the reform, but the support by the two opposition deputies gives the government a one vote majority.

The government package cuts benefits to parents on leave and other handouts, raises sales tax on food and other basic items and unifies all personal income tax brackets at 15 percent next year, from up to 32 percent now, although it also makes the tax applicable to a wider income base.

The income tax would be cut further to 12.5 percent from 2009.

The corporate tax would fall to 21 percent next year from 24 percent, and eventually to 19 percent in 2010.

The government aims to cut the budget 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 leftist opposition rejects the reforms, saying they are designed to help the rich and deepen rather than narrow the public deficits.

[PRAGUE/Reuters/Finance.cz]