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Cabinet announces vast reform to reduce budget deficit

The cabinet has agreed on the largest budget reform of the past decade that should save CZK 80 bln in the next 3 years, Finance Minister Bohuslav Sobotka said after a cabinet session in Brno yesterday. But he conceded the planned measures will not suffice to reduce the budget deficit to a “satisfactory” level, i.e. below 4% of GDP by 2006.

Sobotka expects the biggest expenditure cuts from curbing wage raises in the state sector and from a slower valorization of old-age pensions. Sickness benefits paid out in the first 3 days of sickness should be reduced by half next year. The corporate income tax should gradually fall from the current 31% to 24% in 2006, and the tax on property transfers should be reduced from 5% to 3%.

Lower revenues from these taxes should be compensated with higher indirect taxes, notably the consumer tax on cigarettes and alcohol. Both analysts and the opposition describe the reform as incomplete.

(PBJ 13.v.03)

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