Having reneged on a pre-election promise not to raise income tax — and now backtracking on a number of other pledges on account of limiting the state budget deficit, — Finance Minister Miroslav Kalousek (TOP 09) has said the latest round of spending cuts and tax hikes will be the last austerity measures this government introduces if economy grows as forecast.
“As long as the economy grows according to our prognosis we won’t have to take any major measures other than those we have just announced,” Kalousek said on the Prima Family channel on Monday morning.
Last week the government approved cutting budget spending this year by almost Kč 24 billion and doing away with the flat income tax rate by introducing an additional 7 percent on those earning above Kč 100,000 per month (roughly four times the average Czech salary).
The flat income rate was hitherto a sacred cow of the economic policy of the center-right Civic Democrats (ODS), the largest of the three-party ruling coalition of which TOP 09 is a member. The coalition government also approved raising the standard and reduced value added tax (VAT) rates from 20 to 21 percent, and 14 to 15 percent as of 2013. ‘We live in a time of storms and turbulence.’
The government said the latest round of spending cuts is necessary to keep the state spending deficit below 3.5 percent.
Kalousek warned that the economic situation remains unstable, so more financial austerity measures may be required in the coming months and years. “If there is some sort financial collapse in the eurozone or in another region and there is a negative influence on the economy, a responsible government will have to come forward with other proactive measures,” Kalousek said Monday. “We live in a time of storms and turbulence,” he added.
Kalousek said that although his ministry’s January forecast of 0.2 percent growth in 2012 remains valid, it has lowered its growth outlook for 2013 from 1.6 percent to 1.3 percent. ‘Seniors and employees with average incomes are paying the heaviest price for the government cuts.’
Speaking on the same program, the leader of the main opposition Social Democrats (ČSSD), Bohuslav Sobotka, said the coalition government’s economic policies have been inconsistent and unnecessarily harsh on more vulnerable sections of the population. “Seniors and employees with average incomes are paying the heaviest price for the government cuts,” Sobotka, a former finance minister, said.
Kalousek rejected the assertion, though he admitted that in real terms everyone’s real incomes have decreased. He also said the government within the next month wants to initiate a discussion with the opposition ČSSD on potential economic stimulus measures. “This is a right step and we’re prepared for such a debate,” Sobotka responded.