Czech lawmakers reject petrol tax cut, averting coalition dispute

PRAGUE, July 25 Fri Jul 25, 2014 7:06am EDT

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PRAGUE, July 25 (Reuters) - The lower house of the Czech parliament rejected a cut in petrol tax on Friday, resolving a potential spat in the ruling centre-left coalition.

Lawmakers had unexpectedly approved the approved the cut in petrol and diesel taxes on Wednesday, but overturned that decision an hour later after Finance Minister Andrej Babis complained about how much it would hurt the budget.

The tax change, which would have cost the budget 14 billion crowns ($686 million) a year, had gone through as a rider to a bill meant only to give a tax break to farmers.

A member of Prime Minister Bohuslav Sobotka's Social Democrat party had proposed the rider and other party members had originally supported it, causing a rift in the three-party coalition which took power earlier this year.

Lawmakers rejected the petrol tax reduction in a repeat vote on Friday, voting 62-26 against it.

Babis, leader of the second strongest coalition party ANO, had called the tax cut a windfall for petrol distribution firms that would not translate to lower prices at the pumps.

Sobotka said after the vote on Wednesday that lawmakers had not realised the budget impact of the tax change.

The fuel tax cut was planned around the assumption that it would spur sales at Czech pumps to drivers in transit from west to eastern Europe, bringing in new revenue to offset the cut. Babis rejected those assumptions.

The cabinet is aiming to keep the state budget deficit at 100 billion crowns in 2015, similar to this year. The overall fiscal gap is seen below 3 percent of gross domestic product both this year and next, in line with EU rules. ($1 = 20.3980 Czech Crowns) (Reporting by Jan Strouhal; Writing by Jason Hovet/Ruth Pitchford)

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