Czech parties shun budget moves before Oct poll

                                
 By Jana Mlcochova
                                
 PRAGUE, Aug 17 (Reuters) - The main Czech political parties
gave the cold shoulder on Monday to calls by its non-partisan
finance minister for sharp spending cuts and tax hikes needed to
avoid a sharp rise in the budget gap next year.
                                
 Like many European countries, the Czech Republic's budget
deficit has spiralled since its export-reliant economy was first
hit by the euro zone's slide into recession, but an election on
Oct. 9-10 has put efforts to stabilise finances on ice.
                                
 Finance Minister Eduard Janota said over the weekend that
rises in VAT and other tax rates, as well as cuts in spending,
were needed to prevent the 2010 deficit jumping to 230 billion
crowns ($12.6 bln) -- bringing the public sector gap as a whole
to 7 percent of gross domestic product.
                                
 The leading parties, the left-wing Social Democrats and the
rightist Civic Democrats, who both stand a chance of leading the
next administration, said they would not back such plans.
                                
 "Considering changes in state budget revenue worth tens of
billions of crowns must be given enough time," the Civic
Democrats said in a statement.
                                
 "Civic Democrats consider Mr. Janota's plans to raise the
value added tax, the excise tax, the real estate transfer tax...
as risky and premature as we are not sure yet at which stage of
the economic cycle the Czech economy finds itself."
                                
 Despite an economic contraction this year, the Czech
national debt is still only expected to rise to 34.5 percent of
GDP in 2009 -- far below levels which have worried investors in
other emerging European economies. 
                                
 But without the changes, the deficit would soar above the
EU's 3 percent ceiling -- one of the conditions for adopting the
euro -- and make it harder for the next government to quickly
put finances straight.
                                
 To bring the gap in at 160 billion, Janota proposed raising
value added tax rates to 11 percent from 9 percent and 20
percent from 19 percent, while cutting mandatory spending by 37
billion crowns. [ID:nLH362641]
                                
 The Social Democrats, who prefer higher taxation and
generous welfare system, said cutting mandatory spending and
raising indirect taxes was out of question.
                                
 "For us it is unacceptable to raise indirect taxes, we would
prefer raising direct taxes...," Social Democrat leader Jiri
Paroubek told a news conference. 
                                
 The Social Democrats promise to repeal what is now
effectively a 23 percent flat tax on personal income, and
introduce a progressive tax of up to 38 percent.
                                
 For corporations, the party proposed a 21 percent tax rate,
above the 19 percent approved for the next year and beyond.
                                
 Paroubek declined to say if he would add to planned tax
hikes to bring the deficit down. He also refused to reveal his
party's estimate for the size of the deficit next year.
                                
 (Editing by Patrick Graham)