Czech opposition wants higher corporate taxes, investment boost

PRAGUE Mon May 6, 2013 11:46am EDT

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PRAGUE (Reuters) - The Czech center-left opposition plans a 30 percent tax on utilities and banks to bolster the public finances which it fears could contain a multi-billion euro hole, the possible next finance minister said on Monday.

Jan Mladek, an economist who holds the finance portfolio in the Social Democrat Party, told Reuters he would stick to current deficit targets but said the budget could be severely undermined by poor handling of European Union subsidies.

The Social Democrats lead the ruling Civic Democrats by as much as 30 percentage points in opinion polls and are favorites to win elections expected in May next year, although they will likely need a coalition partner to form a majority.

Mladek, 52, who has previously served as deputy finance minister and farm minister, told Reuters his party wanted a tax of 30 percent on energy utilities, telecoms and financial institutions, up from 19 percent currently. Corporate tax for other firms would rise to 21 percent.

Special taxes would follow Hungary, which initially prompted much investor concern by raising the tax on utilities to 50 percent and levying an extra tax on banks.

Neighbour Slovakia has also instituted special taxes on those sectors and such levies in the Czech Republic would affect investors far beyond the country's borders.

Power firm CEZ is Central Europe's biggest utility, while the country's biggest banks are owned by groups like Austria's Erste and Belgium's KBC.

Mladek said he supported the government's recently relaxed fiscal plan calling for 2.8 percent deficits in the years ahead, but was concerned about the effect of maladministration and fraud in the drawing of EU development subsidies.

Given that funds are first paid from the national budget and later reimbursed from Brussels, Mladek said there could be a shortfall of 150-250 billion Czech crowns ($8 bln-13 billion), or 4-6 percent of gross domestic product, that may never be received.

INVESTMENT BOOST

The Social Democrats are much more in favor of European integration than the current center-right cabinet and Mladek would personally want to put pressure on the government to join the EU's fiscal compact, an agreement on budget rules.

The Czechs and the United Kingdom are the only countries from the EU's 27 members not to sign up, although the cabinet is still in favor of tight fiscal policy.

Mladek said joining the EU agreement was preferable to talks with the government on a national constitutional debt ceiling to limit spending when debt breaches a given level.

But he said he could still see a separate deal on a domestic debt ceiling this year.

"If we have the fiscal constitution, someone could hardly argue that we are fiscally irresponsible," he said.

Mladek said the central European country, mired in a recession since mid-2011, needed an investment boost.

He said he would aim to make the railways and the state forestry company invest more and would boost the national investment aid body Czechinvest.

"I do not see much sign of a recovery in our main market, the euro zone. If there are any opportunities, they are in the new government improving trade and investment relations with China and Russia," he said.

(Reporting by Jan Lopatka; Editing by Toby Chopra)

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