* Plans to submit legislation by mid-year
* Agreement despite deep rifts in coalition
* Plans to raise sales tax sparks opposition
* TAKE-A-LOOK on pensions []
(Adds labour minister comment)
PRAGUE, April 6 (Reuters) - The Czech cabinet has approved
in principle planned reforms to a pension system that is under
strain as the country's population ages, the labour minister
said on Wednesday.
The cabinet vote follows an agreement on reform principles
reached by the centre-right coalition earlier this year, and
marks another step towards drafting concrete legislation.
Accusations of graft in and amongst individual parties have
divided the coalition and raised fears it will fall apart before
key reforms are adopted. However, all three coalition parties
have said they will pursue the reforms despite infighting.
Under the plan, people will be allowed to divert part of
their social taxes, used to pay current pensioners, to private
funds where they would save for their own retirement.
"The government has ordered the finance and social affairs
ministers to prepare a legal draft by the middle of the year
based on the concept approved today," Labour and Social Affairs
Minister Jaromir Drabek told a news conference.
The pension reform plan calls for people to be allowed to
divert 3 percentage points of their 28 percent social tax to
private funds, provided they top it up with another 2 percent of
their net salary.
Private sector economists have criticised the plan for being
too modest to secure sizeable savings, and say there is a risk
that few people will sign up.
The government plans to raise value-added tax (VAT) on sales
to compensate for the drop in revenue that would result from the
diversion of the social tax payments.
The lower VAT tax rate, on food, drugs, books and other
items, would rise from 10 percent to 14 percent next year and to
17.5 percent in 2013. The standard rate, on most goods and
services, would fall to 17.5 percent from 20 percent in 2013.
The Czech Republic has public debt of 38.5 percent of gross
domestic product, less than half the European Union average, but
its pension system is likely to show growing deficits as the
ratio of working population to pensioners drops.
Life expectancy in the Czech Republic is rising while the
birth rate has fallen after an uptick in recent years.
The government plans to submit pension reform legislation to
parliament before the summer in order to secure its approval by
the end of this year.
(Reporting by Jan Korselt, writing by Jan Lopatka, editing by
Patrick Graham)
