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Czech Republic: Political turmoil continues as parliament rejects fiscal bill

September 5, 2012

On 5 September, the government failed to obtain enough parliamentary support to implement its comprehensive fiscal consolidation package. The bill, which aimed at hiking the VAT rate by one percentage point to 15%, increasing taxation on high income earners and establishing a new levy on fuel, fell seven votes short of the 101 votes required to override a veto by the Senate, as six members of Prime Minister Petr Necas' own Civic Democratic Party (ODS) and one member of the opposition refused to back the bill. The adoption of the law is required in order to approve the 2013 budget, which aims to cut the fiscal deficit to 2.9% of GDP, before lowering it further to 1.9% of GDP in 2014. Consequently, on 6 September, the government re-submitted the package to parliament without changes, but linked its approval to a confidence vote in Necas' government, and asked members of the parliament to deliberate for no more than three months. This marks the first time in the Czech Republic's modern history that the government has linked a law to a confidence vote. Analysts believe that the vote is not likely to take place before the end of September, as that would postpone approval of the 2013 draft budget. Moreover, some analysts suggest that the vote of the six ODS dissenters did not necessarily represent an anti-austerity measure stance, but rather signalled the beginning of internal conflicts within the coalition that might jeopardise already fragile government stability.

Author:, Senior Economist

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