VAT hike, freeze on pensions: Govt plans new cuts

VAT hike, freeze on pensions: Govt plans new cuts

VAT hike, freeze on pensions: Govt plans new cuts

Amid the ongoing European debt crisis and some recent glimpses of hope, the Czech government is planning further austerity measures.

A higher VAT, higher taxes for high-income people, and a slower growth of – or an outright freeze on – pensions. These are the three key measures proposed by the two major government parties, the ODS and TOP 09, in order to keep the budget deficit at the originally planned level.

The measures were announced by PM Petr Nečas (ODS) after a meeting of economy ministers.

In the weeks to come, the coalition will discuss these measures in detail. No final agreement has been reached yet.

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Public Affairs, a junior coalition party, is against the VAT hike and freeze on pensions.

In this year’s budget, Finance Minister Miroslav Kalosuek (TOP 09) wants to “only” freeze the expenses at CZK 23.6bil. For the following years, the minister plans more drastic measures in order to cut the expenses by CZK 42.4bil in 2013 and 84.4bil in 2014.

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Starting in 2013, Kalousek wants to introduce a single VAT rate of 20 percent. The lower 14 percent rate would be applied only on drugs and books. Originally, the government planned to increase the VAT rate to 17.5 percent.

Also, PM Nečas announced that the coalition is seriously discussing a possible freeze on pensions for the next two or three years, starting again in January 2013.

PM Nečas and Finance Minister Kalousek agree that these two cost-cutting measures – one aimed at boosting tax revenues and the other one at cutting government spending – will be a key to stabilizing the budget deficit.

“In terms of revenues, we would like to collect CZK 18-20bil more,” said Nečas, who added that for the sake of social solidarity, taxes for people with monthly income over CZK 100,000 should be temporarily increased.

Also, the government plans to implement a package of measures with “pro-growth character” in order to offset the expected drop in household consumption.

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