(Repeats story published late on Tuesday)
PRAGUE, Sept 15 (Reuters) - Leftist Czech parties pulled the
plug on an early election planned for November on Tuesday,
putting the interim cabinet in charge of pushing through the
2010 budget.
The move has consequences for the country's fiscal policy,
facing a fast-growing budget gap caused by the slump in economic
growth which unmasked wobbly foundations of government balances.
The government has said the fiscal gap would hit 7.4 percent
of gross domestic product next year, and the central state
budget alone -- a large part of the overall public sector books
-- would show a 230 billion crown ($13.22 billion) deficit.
But the cabinet said it aimed to slash the budget gap to
around 170 billion, and interim Prime Minister Jan Fischer said
he would quit if parties do not back the plan.
The government had earlier intended to propose the measures
but leave their implementation to a politically-backed
administration.
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GOVERNMENT PROPOSALS:
Budget proposed with a deficit of 230 billion crowns,
corresponding to the total fiscal gap at 7.4 percent of gross
domestic product.
To bring the public sector gap to 5 percent of GDP and cut
the central state budget to around 170 billion crowns, Finance
Minister Eduard Janota proposes the following measures, aimed to
raise a total of 67.7 billion crowns:
TAX HIKES:
* Overall hikes worth 33.6 billion crowns
* Raise the lower 9 percent value added tax rate by 2
percentage points and the higher 19 percent rate by 1 percentage
point.
* Raise excise tax on oil, cigarettes and alcohol
* Double the real estate tax
* Raise a real estate transfer tax to 5 percent from 3
percent
* Raise the cap on the maximum base for social and health
insurance payments by employees to six times the average wage
from the current multiple of four. The ceiling will be at
145,000 crowns.
CUTS
* Overall cuts worth 34.1 billion crowns
* No rise in pensions next year
* Keeping government payments to the public health insurance
system at the 2009 level
* Make "saving measures" in social mandatory spending,
including unemployment benefits and social welfare fees
* Reduce government subsidies to private savings plans
called "construction savings".
PARTIES POSITIONS:
* All parties agree they want to approve a budget in time to
avoid a provisional budget in early 2010.
Provisional budget would limit overall spending each month
to 1/12th of the approved 2009 budget, which was basd on 4.8
percent growth this year.
Mandatory spending would rise as needed, but that would
squeeze out other spending, and limit scope for drawing EU
subsidies.
* The main rightist party, the Civic Democrats, have said
they would back the package. It has said the government should
propose the package and link it with a no-confidence vote in the
parliament.
* The main leftist party the Social Democrats reject cuts in
mandatory spending and insist on hiking pensions.
Like Janota, they propose to raise social insurance caps and
to halt cancellation of progressive taxation.
In a reaction to Fischer's stance that he would only
continue to run the government if politicians agree on cuts,
leader Jiri Paroubek said he wanted to negotiate each of his
party proposals separately and that it was "impossible" that
Fischer's administration wants to dictate the exact terms.
* Approval of the budget and any accompanied savings
measures is unlikely without the agreement among the main two
parties.
ANALYSTS COMMENTS:
TOMAS SEDLACEK, STRATEGIST, CSOB
"It is definitely good news for next year's budget."
"First, because we will avoid a provisional budget...
second, it seems that the Fischer government set a relatively
restrictive budget as a condition for its existence."
IVAN GABAL, THE HEAD OF INDEPENDENT POLITICAL CONSULANCY GAC
"There is significant political frustration, which may be
boosted by the social impact of the economic crisis and cuts in
the government of Mr Fischer.
"(Politicians) will keep pressure on Fischer's cabinet, to
arrive on an agreement on budget restrictions. But I don't know
how much it will make them free of responsibility in the
economic development."
"I think they will have to perform in parliament in some
way. If they block everything, it will be a real disaster in
terms of public perception."
JAROMIR SINDEL, CHIEF ECONOMIST, CITIBANK, PRAGUE
"The largest concern from this uncertainly is the
provisional arrangement for the central government budget, based
on 2008's assumption of GDP growth of 4.8 percent year on year,
which we believe is likely to be the most negative for the
government finances.
"We feel that investors prefer the caretaker government
rather than the uncertainty associated with post-election
negotiations."
"Nevertheless, we do not think there will be an effective
agreement to cut expenditures and we expect the crown <EURCZK=>
to weaken above 26.00 in the fourth quarter of 2009."
(Compiled by Jana Mlcochova)
