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Czech parties reach coalition deal, boosting stocks

Source: Reuters - Wed, 11 Dec 2013 09:57 AM
Author: Reuters
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* Social Democrats strike deal with ANO, Christian Democrats

* Social Democrats back off push for higher company taxes

* Prague stocks boosted by deal, lender Komercni Banka leads

* Cabinet posts still must be agreed by end of year

By Jason Hovet and Robert Muller

PRAGUE, Dec 11 (Reuters) - The Czech Social Democrats have reached a coalition deal with two other parties, agreeing to leave taxes on companies and high earners unchanged next year to help clear the way for a centre-left government to take power.

Prague stocks were lifted by the agreement, announced late on Tuesday night. The index was up more than 0.9 percent in morning trade, with Komercni Banka as the top gainer. Its shares climbed 2.1 percent on relief that banks would not be hit with a special sector tax in 2014.

Policymaking in the central European country has been stalled since June after a centre-right cabinet collapsed in a spying and bribery scandal. A caretaker government took over, but lacked the power to push through measures to help the economy recover from the country's longest recession.

The new government will bring together the leftist Social Democrats, who narrowly won an October parliamentary election, with the centrist ANO movement and the Christian Democrats.

Taxes had been the toughest sticking point. The ANO, founded two years ago by billionaire businessman Andrej Babis, was against any increase, forcing the Social Democrats to back off plans to raise taxes for utilities, banks and telecoms.

"It is definitely done. We have agreed on controversial areas that have lingered until now," said Bohuslav Sobotka, the Social Democratic party chairman and likely next prime minister. The parties will unveil their programme on Friday.

Sobotka, who wants to lead his party back to government for the first time since 2006, said some tax changes could come in 2015. He added that a so-called sector tax remained a possibility in the future.

TAX STABILITY

The parties have all said the economy needs recovery measures after sales tax rises and reduced government spending under a centre-right administration helped tip it into a six-quarter contraction in 2011.

The Social Democrats had also pushed for higher taxes on companies to boost budget revenue and meet pledges to keep the state deficit below an EU-prescribed limit of 3 percent of economic output.

But ANO, an anti-corruption movement that soared to a surprise second-place finish in the October vote, instead wants the coalition to look at cutting government fat.

"For us it is important that we will create tax stability in our country for the next four years and that we will begin to function as the new government," ANO deputy leader Jaroslav Faltynek said.

ANO had earlier won a big concession in the coalition talks with the promise to nominate the country's next finance minister - a post that Babis, who has built the country's biggest food and agricultural group over the past two decades, could fill himself.

The parties need to agree on cabinet posts in the coming weeks and Sobotka wants to present his government to President Milos Zeman by the end of the year. The pair are due to meet on Thursday, a spokesman in the president's office said.

Zeman, a former Social Democrat prime minister who later split with the party, has already clashed with political parties over the appointment of caretaker Prime Minister Jiri Rusnok earlier this year. He has said he wants a say in cabinet appointments, which could delay the government's formation.

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