Czech PM, backbenchers clash over fiscal bill -CTK

...may trigger an early election, news agency CTK said.

Topolanek met a group of backbenchers demanding changes to the government's personal income tax proposals but they did not reach an accord that would secure the bill's approval in a parliamentary vote expected next week.

The new EU member's centre-right coalition -- which has just 100 seats in the 200-seat parliament -- has said it will seek an early election if the plan fails in parliament.

"I have heard our experts (deputies) and I think that this will be complicated still," CTK quoted Topolanek as saying.

The coalition has agreed to introduce a flat tax of 15 percent on personal income next year, eliminating current tax brackets of 12 to 32 percent.

In 2009, the tax should fall further to 12.5 percent, but at the same time tax deductions would drop.

That would mean that some people would pay higher tax in 2009 than in 2008, a point that angered former finance minister Vlastimil Tlusty and several other ODS backbenchers.

CTK reported that Tlusty said after the meeting there was a willingness to find a solution, and that several options were being considered.

Political analysts have said that the coalition is likely to succeed in the vote, because its deputies would not dare to bring down the government, which won power in January after seven months of political crisis, and risk an early election.

One deputy from a junior coalition party has said he will not support the bill but two opposition deputies have pledged to support the cabinet, giving it a slim majority if all ODS deputies are united.

The government package cuts benefits to parents, sick pay and other handouts, and raises sales tax on food and other basic items as well as energy and cigarettes.

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.

Analysts say the reforms go in the right direction but the cabinet should be much more aggressive in narrowing the deficit at a time of more than 6 percent economic growth.

[PRAGUE/Reuters/Finance.cz]