The Czech Senate vetoed proposed tax increases Thursday – the second piece of major legislation it has turned down in as many days. Coming on the heels of its rejection of a church restitution bill Wednesday, the upper house voted down an increase of the value added tax (VAT) along with a proposed “solidarity tax” to be imposed upon the country’s highest earners.
Social Democrats led the resistance effort as 52 of 70 senators present voted against the tax hikes. The Christian Democrats and Communists joined ČSSD in their blockade of the legislation, while all but one of the voting members from center-right parties ODS and TOP 09 supported the reforms.
Senator Jaroslav Kubera (ODS) was the only right-winger to break party ranks. “Raising taxes in a recession is nonsense,” Kubera said.
Finance Minister and TOP 09 Deputy Chairman Miroslav Kalousek defended the austerity minded legislation as a “necessary evil”. Spending cuts account for a majority of deficit reductions in the package, he noted, while only one-third come from increased revenue.
The country’s two VAT rates would be raised by one percentage point each to 15% and 21%, respectively. A 7% tax would be levied on citizens earning a gross salary of four times the national average, about 100,000 crowns ($4,950) a month.
The proposal now returns to the Chamber of Deputies, where an absolute majority can enact the reforms despite the Senate’s rejection. While tax increases are likely to garner the necessary Chamber support, rising opposition complicates second-round passage.
Social Democrats recently found an unlikely ally in their campaign against tax increases in President Vaclav Klaus. “The increase in all taxes and VAT in particular harms our economy, hinders it. It is an unwise move,” the former ODS leader said recently.
Prime Minister and ODS Chairman Petr Nečas brushed aside Klaus’ criticism of the austerity package aimed at keeping the deficit below 3% of GDP, noting that it was easy to make such remarks without the burden of responsibility for the state budget. Nečas said that the government’s ability to put together a budget is tied to the tax increases and implied that their failure might mark the end of the ruling coalition. “The government stands or falls with it,” he said.