The Czech Republic is planning to more than double its quota in the IMF, a move that should strengthen its position in the organization. Currently the country’s quota amounts to 1,002 billion Special Drawing Rights. The Finance Ministry’s proposal, approved by the government on Wednesday, envisages an increase to 2,180 billion Special Drawing Rights. A member country's quota determines its maximum financial commitment to the IMF, its voting power, and has a bearing on its access to IMF finances.
The six Civic Democrat deputies who are vehemently opposed to the government proposed VAT hike for 2013 say they will torpedo the government’s austerity package for next year if a compromise solution is not found. A series of negotiations with the Civic Democrat leadership has not brought the two sides any closer to agreement. The respective bill is crucial for next year’s state budget and the prime minister has linked it to a vote of confidence in his government. Civic Democrats opposed in principle to tax hikes claim that the money should be found by cost-cutting measures and through privatization, but this solution has been criticized in view of time-pressure.
Shadow finance minister Jan Mládek of the Social Democratic Party claims the government and Finance Ministry are in gross violation of the law in accepting a budget proposal based on un-ratified legislation. Mr Mládek told a press conference on Thursday that the proposal was only pulling the wool over the public’s eyes, as the final draft would have to be entirely changed in order to each agreement with the rebel MPs from the Civic Democrats. A rejection of the planned VAT increase by those MPs could force a stopgap budget in 2013, which Mládek says would cost the country some 20 billion crowns and entail more expensive food and medicines for citizens.
The Czech National Bank has cut interest rates to a new record low. The bank’s benchmark rate fell by a quarter point to its lowest ever rate of 0.25%. The Lombard rate, used when lending money to commercial banks against securities as collateral, was cut by half to 0.75%. The discount rate, which applies to fines for unpaid loans and unpaid taxes, fell by 0.15 points to 0.1%. Economists expected the move due to the weak economy and the relatively strong crown. The Czech Republic has one of the lowest interest rates in the region. The European Central Bank´s benchmark rate for all euro-zone countries stands at 0.75%.
The Czech government approved a draft 2013 state budget on Wednesday evening that will allow for a 3% GDP deficit. The draft anticipates a 100-billion crown deficit which will require the passage of a package of tax changes, including higher VAT rates. These have proven controversial as six MPs from the senior governing Civic Democratic Party have joined the opposition on the issue. A working group has been formed in the party to resolve the dispute. Trade unions have also rejected the package, arguing that the financial risks of the proposed budget amount to 45 to 60 billion crowns and relies on legislation that has not yet been passed. The Chamber of Deputies must pass the budget bill for next year by December.
Coalition party TOP 09 has warned that the government will fall if the Civic Democrats fail to restore party discipline and support its key reform bills. The coalition government’s long-term austerity plans have been thwarted by six rebel deputies from the prime minister’s Civic Democratic Party. The rebels rejected a bill on tax hikes which aimed to bring the gap in public finances under 3 percent of the GDP in 2013 and indirectly got the bill on church restitutions shelved. The future of the pension reform bill, which has just been vetoed by the president, will also hinge on their support. The government has linked the bill on higher taxes to a vote of confidence in the Necas administration.
Representatives of the government, trade unions and employers did not come to an agreement over the proposal for next year’s budget during tripartite negotiations on Monday. Union representatives rejected the budget proposals, and business representatives have reservations about it. Finance Minister Miroslav Kalousek said the government will send the budget proposal to the lower house in its current state along with the statements from the trade union and employers’ representatives. These were the first such negotiations in the past half a year, and there were doubts about whether they would take place at all after a spat between Prime Minister Petr Nečas and the head of the Bohemian-Moravian Confederation of Trade Unions last week. Trade union representatives have walked out of tripartite negotiations a number of times in the past.
Finance Minister Miroslav Kalousek announced on Monday that the ministry is prepared to change or delay tax advances for alcohol producers who have been negatively affected by the ban on hard liquor. A ban on the sale of alcohol with 20 or more percent alcohol content was instituted on 14 September, and a ban on exports six days later. The government is currently preparing necessary measures to allow newly produced alcohol to enter onto the market again.
Czech trade unions on Friday criticized the draft of the state budget for 2013. Union leader Jaroslav Zavadil said the draft’s most serious shortcoming was that both its revenues and expenditures were based on legislation that has not yet come into effect. The draft state budget includes a deficit of 100 billion crowns, or 2.9 percent of GDP. However, the draft is based on the assumption that the Czech GDP will grow by around 1 percent next year, and that new tax legislation will come into effect in January 2013. However, trade union leaders said the deficit could in reality amount up to 160 billion crowns.
The Czech finance and agriculture ministers have come up with proposals on Wednesday that would help alleviate the ban on hard liquor that was instituted on Friday, 14 September. Finance Minister Miroslav Kalousek proposed to print new excise stamps, which would be attached to newly produced or imported bottles of alcohol. The new stamps would clearly let consumers know that the alcohol has been produced or imported after the ban and that its origin has been verified. Agriculture minister Petr Bendl said he wants to introduce so-called birth certificates for liquor bottles that would make their origin and ingredients clearly traceable. Prime Minister Petr Nečas said both measures will be part of a government directive that should be ready on Thursday.
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