Czech Prime Minister to push for higher sales tax hike

The deepening eurozone crisis calls for a bigger sales tax hike than already agreed, the Czech prime minister told a newspaper on Saturday, setting the stage for renewed political turmoil in his fractious cabinet. Petr Necas's centre-right government has pursued a campaign of tax hikes and spending cuts to help cut the budget deficit and pay for reforms in the pension and health care sectors that he warns will go bankrupt in a few decades if not fixed.
The measures have won praise from investors for the European Union state of 10.5 million people but have also hammered the popularity of the three parties in the ruling coalition. Battles over reforms have repeatedly pushed the government to the brink of collapse. Few points have been more contentious than raising sales taxes, a move the government has agreed to pay for a private pillar in the pension system, which will divert funds that have until now gone to budget revenue.
After months of bickering and threats by the smallest ruling party, Public Affairs, to quit the coalition, party leaders agreed on a plan in March to gradually unify the country's two value-added tax rates at 17.5 percent in 2013.
But in an interview with daily Mlada Fronta Dnes, Necas said the spreading eurozone crisis meant the Czechs needed to buckle down on fiscal consolidation. "Four weeks ago, I think, I said that if the euro zone crisis would deepen and the number of countries with problems would grow, I could imagine a more severe path towards consolidating public finances, even at the cost of temporary measures on the income side in the form of indirect taxes, which means VAT," he told the paper.
"I can imagine a return to the original agreement of a basic rate of 19 percent." Under the plan agreed by party leaders and now awaiting parliamentary approval, the lower 10 percent rate that includes many staple food items, construction materials and other goods would rise to 14 percent next year and 17.5 percent in 2013. The higher rate, now 20 percent, would fall by 2.5 percent. Necas said he could consider an exemption for lower-bracket items such as books, drugs, and printed media in order to reach a deal with Public Affairs. But Public Affairs rejected the proposal.