Czech leftists see chance to take power, eye tax hikes

PRAGUE Mon Oct 22, 2012 12:45pm EDT

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PRAGUE (Reuters) - The main Czech Social Democratic opposition believes it can take power early next year if the embattled center-right cabinet collapses, and would seek to raise taxes and possibly loosen budget targets, its chairman said in an interview.

An opinion poll released on Monday found the Social Democrats would win 33 percent of the vote if an election were held now, up from 31.5 percent in September and double the 16.5 percent garnered by the Civic Democrats.

Bohuslav Sobotka, a former finance minister and the likely next prime minister, told Reuters an early election could follow a January presidential vote if infighting, scandals and a rout at regional polls this month bring down the cabinet.

The Czech Republic has kept the budget under control and debt levels low but the cabinet's unwavering drive for austerity has angered voters, cut into consumer spending and deepened the European Union's longest recession outside the euro zone.

Prime Minister Petr Necas, whose term runs until 2014, could fall as soon as this week, or after a party congress on November 2-4, thanks to a rebellion by backbenchers among his Civic Democrats. They have threatened to torpedo plans to raise the value added tax via a confidence vote.

"There is a realistic chance here (of cabinet collapse)... Timewise, the most probable option is for polls to be held soon after the presidential election in January," Sobotka said in the interview.

His party's answer to Necas's austerity would be to halt tax hikes on consumption, raise budget revenues with higher income taxes, and possibly re-negotiate deficit-reduction plans.

Sobotka said the Social Democrats would look to raise the tax level gradually by about 3 percentage points of gross domestic product, from the current level of 34.7 percent, or by about 115 billion crowns ($6.03 billion) per year.

"This would be a task for the next election period. We would focus on the corporate tax and a return to progressive (personal income) taxation," he said.

"We are considering a system functioning in half of EU countries, which would mean a small increase for smaller firms and a higher tax rate for bigger companies."

CHANGES TO CONVERGENCE GOAL?

In the past two years, the Czech Republic significantly outperformed a deficit reduction plan, or Convergence Program, agreed with the European Commission. But a recession has made it harder to meet future targets of 2.9 percent in 2013, 1.9 percent in 2014 and 0.9 percent in 2015.

Sobotka said he would not unconditionally commit to the plan if it would lead to excessive austerity that would kill growth.

"We certainly will keep a reservation here but in no way would there be any unilateral step by the Czech Republic."

"We will respect the Convergence Program (but) in case we find that the government negotiated it counter-productively from the point of view of economic growth, then we will try to negotiate changes," he said.

He said his government would go along with plans by the current administration to enact a constitutional cap on debt, although he would like individual debt thresholds slightly softer than the government's current proposals.

A Social Democratic government would also be warmer towards joining EU activities to counter the continent's debt crisis.

It would consider joining the EU's "fiscal compact" on budget responsibility once the domestic debt cap is in place, and would support introduction of a financial transactions tax.

OPINION POLL

While the latest opinion poll put the Social Democrats well short of a majority, they could win one together with the far-left Communists, the country's former totalitarian rulers - a fact that has stirred debate among Czechs over the potential dangers posed by a party with strong anti-NATO views.

The two parties have forged coalitions on the regional and municipal level, where mainstream parties have not been vigorous in blocking Communist representatives from power.

Sobotka said he felt the Communists were not fit to become a government partner for the Social Democrats but that they could support a minority Social Democratic administration - unless the Social Democrats agreed a coalition with small centrist parties whose electoral prospects are now uncertain.

(Editing by Mark Heinrich)

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