By Jana Mlcochova
PRAGUE, Aug 19 (Reuters) - The leading Czech leftist party
on Wednesday agreed in principle to rein in a soaring budget gap
after October elections, as the finance minister warned the
country could otherwise go the way of crisis-stricken Hungary.
The Czech Republic, like many European countries, has seen
its fiscal deficit soar as an economic crisis hammered revenues
and caused a spike in social spending, and parties have eschewed
belt-tightening schemes ahead of the Oct. 9-10 vote.
Finance Minister Eduard Janota, part of a technocrat
caretaker cabinet in power till the polls, has laid out cuts in
"mandatory" spending and tax rises he says are needed to stop
the deficit jumping to 7 percent of GDP next year.
Both of the two main parties vying for power in October's
poll have declined to back his plan, but the leftist Social
Democrats said on Wednesday the deficit could be reduced without
resorting to some of the measures proposed by Janota.
"We assume we can get to a gap of some 170-180 billion
crowns. The key would be growth in revenues, cutting mandatory
spending is 'science fiction', and will be impossible to push
through," leader Jiri Paroubek told reporters.
Leftist officials said they would accept cuts and tax hikes
to bring next year's gap to around 5 percent of GDP, although
they ruled out cuts in mandatory spending, which stand for 80
percent of all government outgoings.
The vote on the budget would not take place until after the
elections, due on Oct 9-10, and polls show both the Social
Democrats and rightist Civic Democrats could emerge with enough
seats to head a new government. []
The Civic Democrats, who have promised to balance the budget
by 2017, said on Tuesday the discussion of what to do with the
budget should be left till after the election.
HUNGARY STYLE
Janota said without swift moves, the Czech Republic could
face a crisis like that which threw Hungary into a contraction
in 2007 when the rest of the region was enjoying 5 percent
growth or more.
Hungary struggled with deficits of more than 9 percent in
two election years earlier this decade following foot-dragging
on paring spending and moves by the Socialist government like a
50 percent public sector wage hike in 2002.
Resulting sharp cutbacks in the face of ballooning debt
costs sucked huge amounts of cash from the economy and forced
Hungary to contract in 2007. It was also the first of the EU's
eastern members to have to reach out for IMF aid last year.
"The Hungarian path is realistic unless we now start
seriously debating proposals for stabilising public finances,"
Janota said in a statement on Wednesday.
Social Democrat chief economic expert Jiri Havel told
Reuters the party would prefer to raise not only social
insurance caps but also social insurance payments by companies
for employers.
The previous centre-right administration of Mirek Topolanek
cut those payments to alleviate companies' tax burden.
Should the situation look critical, he said, the party would
agree with raising indirect taxes, including excise tax and VAT,
a move it has vehemently opposed as it would raise the price of
food and go against its socially liberal platform. Havel also
said he could imagine raising company income tax.
