RPT-Czech ruling party unites for reform vote

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Czech Prime Minister Mirek Topolanek united his right-wing Civic Democratic Party (ODS) on Sunday behind fiscal reforms which if rejected could lead to an early election, a key parliamentary deputy said.

Deputy Vlastimil Tlusty, who has been demanding changes to the government's personal income tax proposals, said he had reached an accord with Topolanek that will secure the bill's approval in a parliamentary vote expected on Tuesday.

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

"There has been an agreement," Tlusty said in a live debate on Czech Television. "There is willingness to remove the problem."

The coalition 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 Tlusty and several other ODS backbenchers.

Tlusty did not say how the taxes would be altered, but said there would be no change in the proposed tax rates.

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

If it introduces a flat personal income tax, the Czech Republic will join Slovakia, Romania, Estonia, and other ex-communist states that have cut taxes to discourage evasion, boost industry and close the wealth gap with the West.

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

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.

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

[PRAGUE/Reuters/Finance.cz]