Sunday, September 09, 2012

Czech PM sees compromise on tax row, government surviving

PRAGUE (Reuters) - The Czech government can compromise with a group of rebel ruling lawmakers over a law crucial to its budget consolidation goals and avoid its collapse in a confidence vote later this autumn, Prime Minister Petr Necas said on Sunday.

The future of Necas's centre-right cabinet was cast into doubt last week when six members of his Civic Democrat party rejected a hike in value added tax (VAT) in parliament, saying it would deepen the worst recession among any country in the European Union's emerging east.

Necas had vowed to resubmit the law unchanged and tie it to a confidence vote on his government when it returns to the chamber later this autumn, raising the prospect his government could fall. But on Sunday he said he thought a compromise could be reached with the dissenters.

"We have two extreme positions. One is the government proposal for the consolidation package without any changes. And then there is the proposal of our six colleagues, which I still don't know about exactly," Necas told news channel CT24.

"It's clear that there must be a political compromise. There must be something, somewhere. That means that, yes, I allow that it won't be the pure government proposal, and it also won't be the pure proposal from my colleagues."

Necas and his finance minister, Miroslav Kalousek, have cut the budget deficit from 5.9 percent of gross domestic product in 2009 to an estimated 3.2 percent this year.

Arguing the reduction has pleased investors, they enjoy record low borrowing costs, with five year bond yields bid at 1.32 percent, versus 4.23 percent for regional peer Poland.

But the country suffered a third quarter of recession from March to June. Economists say Necas's unwavering drive to cut the deficit is hammering normal Czechs, and polls show consumer confidence is at its lowest point since the late 1990s.

The stance has also driven the popularity of Necas's Civic Democrats to about 15 percent. It and its two ruling partner parties control just half of the lower house's 200 seats and depend on support from independents to push through its agenda.

But Necas, who will hold talks with his rebel party members before the new VAT bill goes to a vote later this year, said he believed his government would survive.

"I firmly believe that common sense will win out, than the rational, responsible behaviour of those involved will win out, and this government will continue and fulfil its reform programme," he said.

(Reporting by Michael Winfrey; Editing by Sophie Hares)

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Sunday, September 09, 2012

Czech PM sees compromise on tax row, government surviving