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Reforms proposal fails to satisfy

Coalition members, others to challenge sweeping tax changes

By Kimberly Ashton
Staff Writer, The Prague Post
May 30th, 2007 issue

The lower house now has the government’s hard-fought reform package and will begin hashing it out in the coming weeks with the fate of the coalition possibly hanging in the balance.
The proposal, which the Cabinet sent to the lower house May 23, provides sweeping changes to the country’s tax structure. It would introduce a 15 percent flat tax, as opposed to the current graduated tax that tops out above 30 percent, with exceptions for those with lower incomes. Corporate tax would decrease from 24 percent to 19 percent by 2010, while the value-added tax would grow from 5 percent to 9 percent.
Several other measures, including a reduced birth allowance, changes to sick pay and higher medical co-payments are bundled into the package.
But the package seems to make few happy. Critics on the right accuse the Civic Democrats (ODS) of backpedaling from its vow to create a flat tax, and those on the left say the package would hurt the middle and lower classes.
Dissatisfaction among coalition members could spell trouble for their fragile union. The ODS has trumpeted the flat tax as one of its hallmark initiatives; defeat would reflect a lack of confidence in the coalition and in the ODS’s power to push through reforms.
The Greens conditioned their support of the deal on an environmental tax that would tax those using coal to heat their homes and exempt households using natural gas.
The complicated proposal is exactly what the ODS wanted to avoid. Vlastimil Tlustý, a deputy in the lower house, says the compromise goes too far. “The proposal doesn’t reflect the original ODS package,” he said, adding that he would not vote for it as it is.
Meanwhile, Social Democrat (ČSSD) Jiří Paroubek is wholly against the proposal and intends to block it. He says its cuts will hobble education, drain precious income from the lower classes, hinder scientific research and hurt senior citizens.
“Education and innovation are the key things for our economics to remain competitive,” he wrote in Právo May 21, adding that “The ČSSD would never sign a bill that proposes such drastic cuts in the social field.”
Debate over the proposals will begin in June.
— Hela Balínová, Naďa Černá and Riva Froymovich contributed to this report.

Kimberly Ashton can be reached at kashton@praguepost.com


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