Czech Ruling Parties Clash Over Tax Cut Set to Boost Deficit

The Czech government parties disagree how much to cut the personal income tax next year, clashing over a plan that will curb budget revenue already strained by the coronavirus crisis.

The country is grappling with one of the most acute outbreaks of the pandemic in Europe, shutting schools and no-essential shops as well as limiting movement of people. The government is extending budget stimulus to protect jobs in the affected businesses. Unlike in the spring lockdown, key manufacturing factories remain running.

Czech Ruling Parties Clash Over Tax Cut Set to Boost Deficit

The two ruling parties have agreed to simplify the system, in which income tax is now calculated from a base that also includes payroll taxes paid by employers. But billionaire Prime Minister Andrej Babis and his junior coalition partner, the Social Democrats, have tabled two competing bills, seeking to reduce the lower bracket to 15% and 19%, respectively.

Czech Ruling Parties Clash Over Tax Cut Set to Boost Deficit

While the motion would benefit most workers, Social Democrats say Babis’s proposal would leave more money in the wallets of top earners. The party estimates its plan would cut the budget revenue by about 25 billion koruna ($1.1 billion), compared with a 70 billion-koruna impact of the prime minister’s proposal.

“From the budget perspective, we can’t afford to cut taxes for people making more than 100,000 koruna,” Labor Minister Jana Malacova, a Social Democrat, said Tuesday. She said her party will seek support for its plan across all parliamentary groups before lawmakers are expected to vote on the bills next week.

The finance ministry, which is headed by Babis’s nominee, has endorsed his proposal. It’s planning a 320 billion-koruna deficit for the next year, without the effect of the tax cuts, and said the fiscal impact should be mitigated by increased consumption.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.