Czech draft budget would put deficit at 2.9% of GDP

The Czech centre-right government Wednesday approved a 2013 state budget bill under which it said the public deficit would be below the EU threshold of 3 percent of GDP. However, the budget is based on a tax hike that has been vetoed by the parliament. The budget draft, assuming a public deficit of 100 billion koruna (4 billion euros, $5.1 billion), must be submitted to the 200-seat parliament by the end of September. State spending will be 1,184.7 billion koruna and revenue 1,084.7 billion koruna, said Prime Minister Petr Necas. "The budget has been drafted to allow a public deficit of 2.9 percent of gross domestic product next year. That is under the (European Union's) limit of 3.0 percent," he told reporters. But Necas's government may find it hard to find parliamentary backing for the bill as its support in the chamber has shrunk to just 100 seats from the original 118 it had when it took office in mid-2010. Earlier in September, the three-party governing coalition failed to approve a bill raising the value-added tax rates to 15 and 21 percent from the current 14 and 20 percent rates -- a move it sees as necessary to raise tax revenues to the required level. The planned tax hike angered lawmakers from Necas's Civic Democrats party who are against any tax increases and led six of them to break ranks with the party and vote against the increase. The government then approved the tax hike again immediately and tied it to a confidence vote expected to take place later in the autumn. The government has won two confidence votes and four no-confidence votes since it took office, surviving the latest votes with support from a group of former allies now sitting as independents. Necas's government has vowed to cut the public deficit below 3.0 percent of GDP next year from an expected 3.5 percent this year, despite a sharp economic downturn that sent the country into recession early this year. The Czech central bank has forecast an economic contraction of 0.9 percent for this year on the heels of a 1.7-percent expansion in 2011, before a pick-up to 0.8-percent growth in 2013. The Czech Republic, an ex-communist country of 10.5 million, joined the EU in 2004 but has yet to join the eurozone -- a step Necas's government has vowed not to take, given the current euro crisis.