PRAGUE, May 15 (Reuters) - The lower house of the Czech
parliament approved a multi-billion crown package of measures
aimed at boosting the economy, backed by the main political
parties as the country's once fast-growing economy plummets.
The package, estimated to cost 40 billion crowns ($2.03
billion) this year and a slightly smaller amount next year, sees
cuts in companies social tax payments and includes car scrapping
subsidies.
It was agreed as part of a cross-party deal to end a
political crisis prompted by the fall of the centre-right
cabinet in March.
The measures add to those adopted at the turn of the year
and aimed at stimulating confidence in financial markets. They
were estimated to cost the state coffers 32.2 billion crowns
this year through extra spending and cuts in revenues.
Some of the provisions, such as tax cuts, have been approved
for an indefinite period of time so the total cost of the
stimulus is hard to estimate.
Analysts said the measures would boost this year's economic
activity by only 1 percentage point and said the package was the
maximum the government can do to avoid bloating this year's
public sector gap over 5 percent of gross domestic product.
"The package is balancing on the edge between what the Czech
Republic needs and what it can afford," said David Marek, an
analyst at Patria Finance.
"If you combine the worse-than-expected recession and the
fiscal package... the (budget) deficit will range around 180
billion crowns, meaning total fiscal gap of 5 percent of GDP,
and that is a boundary of tolerance of financial markets which
could penalise the country by raising a risk premium."
The Czech Republic's economy slumped by a much
worse-than-expected 3.4 percent year-on-year in the first
quarter, data showed on Friday, as exports and manufacturing
collapsed.
The right-wing Civic Democrats and the leftist Social
Democrats agreed to back a caretaker cabinet, led by
non-partisan Jan Fischer, until an early election in October.
The deal on the economic measures accompanied the agreement on
the cabinet.
The lower house supported government proposals to cut the
social insurance tax, speed-up asset write-offs, and change
bankruptcy legislation.
The parliament also supported opposition proposals to
introduce a 30,000 crown ($1,496) scrap subsidy to those who
hand in old cars and buy new ones, raise unemployment and child
benefits and increase personal income tax deductions.
Most of the package, which still needs approval in the upper
house, the Senate, will expire at the end of 2010.
The government expects the budget deficit this year to jump
to around 4.5 percent of gross domestic product form 1.5 percent
last year, as the economy shrinks by more than 2 percent.
The Czech economy has not suffered from a banking or
currency crisis, thanks to low foreign debt and a small current
account deficit, but a collapse in west European demand has cut
exports and manufacturing output by over a fifth early this
year.
Central bank Vice-Governor Miroslav Singer said on Friday he
believed the economy may be slowing its decline or bottoming out
[].
(Reporting by Jana Mlcochova and Robert Mueller, writing by Jan
Lopatka; Editing by Andy Bruce)
