PRAGUE, April 28 (Reuters) - The Czech Republic will hold a
general election on May 28-29 that looks likely to bring the
centre-left Social Democrats to power after a four-year hiatus,
handing them the task of slashing a crisis-inflated budget gap.
The election could break a deadlock that has crippled
policymaking since an election produced a hung parliament in
2006.
But polls suggest that no strong government is likely to
emerge, owing to the fine balance between left and right-leaning
voters, and a minority government is a strong possibility.
Here are selected issues to look for in the election.
VOTING RESULTS AND COALITIONS
The Czech Republic has not had a government with a clear
majority for over a decade and election results tend to be
close, leading to weak governments and frequent policy deadlock.
The Social Democrats hold a 7-9 percentage point lead over
their main rivals, the centre-right Civic Democrats, but will
almost certainly need coalition partners to control a majority
of parliament's 200 seats. []
They could form a minority government backed by votes of the
far-left Communists, a party deemed unacceptable by most in the
political spectrum, which has not had any share on power since
the end of its totalitarian rule in 1989.
A close result could lead to a grand coalition of the two
biggest parties, the Civic Democrats and the Social Democrats, a
development analysts say could hamper decisive reforms.
Success of new small parties, derived from voter
dissatisfaction with a series of graft scandals in the main
parties, could alter the picture, possibly opening the way for a
centre-right coalition. Some of the small parties have been
gaining strength in recent polls.
What to watch:
-- Close result could unnerve financial markets, lead to
lengthy coalition-building, possibly a grand coalition
-- If the Social Democrats and the Communists between them
win more than half of the seats, a minority Social Democrat
cabinet backed by the Communists is likely.
-- If the two win less, a centre-right coalition is possible
FISCAL POLICIES
The Social Democrats have pledged to hike taxes on firms and
higher wage earners to cut the budget gap to 3 percent of GDP in
2013 from 5.9 percent last year, but promise a generous welfare
agenda and euro entry by 2015.
Analysts say taxes will not be enough to help balance a
budget that faces pressures from the financial crisis -- the
economy shrank 4.1 percent in 2009 -- and more importantly is
weighed down by long-neglected structural problems which pose a
medium-term threat to the country's 'A' rating from S&P.
The IMF and OECD have warned Prague it must reform pension,
health and welfare, and changes should focus on spending rather
than tax. [] []
The Civic Democrats have said they would not raise taxes and
have promised to cut the budget deficit to 3 percent by 2012 via
spending cuts. They pledged to balance the budget by 2017.
Fiscal tightening is key to taming the growing debt pile,
which is expected to reach 39 percent of GDP this year, up from
29 percent just two years ago but still half the EU average.
What to watch:
-- Social Democrats may scale back welfare plans, back off
from euro entry target
-- Coalition partners may limit left's tax hike plans
-- 2011 budget will define speed of fiscal consolidation,
market trust in the strong crown currency
-- Pensions: left rejects need to reform the system which
analysts and international institutions say is headed for ever
greater deficits.
ENERGY POLICY AND REGULATION
The Social Democrats have lashed out at utilities, promising
to bring down power prices through tougher regulation. They have
also said they would tighten regulation of telecoms and push for
lower bank fees.
Power firm CEZ <>, central Europe's biggest company
with market capitalisation of $26 billion, is almost 70 percent
state owned and a significant source of government revenue.
The Social Democrats have said they would raise dividend
payments to fund a one-off bonus to pensioners.
CEZ is also running the biggest tender in the country's
history to order up to five nuclear power station units.
The government will play a crucial role in the deal,
estimated by Czech media as worth 500 billion crowns ($26
billion) and may influence which of three bidders -- Areva SA
<CEPFi.PA>, Westinghouse Electric, a unit of Toshiba Corp
<6502.T> and Russia's Atomstroyexport -- wins the project.
What to watch:
-- Proposals for special CEZ dividends
-- Political involvement in nuclear tender
-- Pressure on power, telecoms prices through regulation
(Reporting by Jan Lopatka; editing by David Stamp)
