The Czech government on Monday gave final approval to a public finance reform package designed to cut high budget gaps and stop the growth in Czech government debt. Cabinet approval was expected after the leaders of all three ruling coalition parties agreed late on Sunday on a final framework for the fiscal reform. The medium-term reform plan targets cutting the public finance deficit to four percent of GDP in 2006 from a record high of 6.2 percent this year. The public finance reform is also the main precondition for eventual adoption of the euro later in this decade.
The government expects the biggest savings to come from a slower growth in wages of staff in the public sector, a slower indexation of pensions, cuts in sickness benefits and tighter rules for the payment of social benefits. The number of civil servants will not grow and the number of staff in the entire public sector should drop. Budget revenues should grow on higher excise duty on cigarettes, alcohol and fuels, and many services will be subject to 22 percent VAT instead of the current five percent rate. Tax on real estate will grow and the self-employed will pay not only the minimum tax, but also higher sums in social insurance. On the other hand, corporate income tax will gradually drop from today's 31 percent to 24 percent in 2006.
Around 1,500 trade union members gathered outside the office of the government on Monday afternoon in protest against the proposed public finance reform. The rally was organised by the largest Czech trade union group, the Czech-Moravian Confederation of Trade Unions. Czech trade unions strongly disagree with the proposals for finance reform and they are demanding, among other things, a restriction on tax loopholes, the introduction of a 16-class pay scale for civil servants, and the compulsory use of monitored cash registers. Last week, around 2,000 members of another trade union organisation, the Association of Independent Trade Unions also held protests against the reform in Prague.
The Czech trade deficit for May narrowed well beyond expectations to its lowest level since January, as exports jumped sharply due to positive exchange rate developments. The Czech Statistics Office said on Monday the May shortfall was less than 2.5 billion crowns, as compared to analysts' forecasts of around 8 billion crowns. The Statistics Office said exports were up 8.4 percent, year-on-year, for May, and imports were flat as the stronger euro hurt the flow of goods coming into the country while the crown/dollar exchange rate helped exports.
The Czech ambassador to the EU Pavel Telicka signed an agreement on Monday between the European Union and the Czech Republic on Czech participation in the EU mission in Macedonia, the first such mission within the Union. Under the agreement the Czech Republic promises to send two representatives to the mission's press and information centre. The Czech participation is expected to cost about 52,000 euros. The two Czechs will serve in Macedonia until the end of this year.
The People's Republic of China has withdrawn its participation at the 10th International Theatre Fair "Quadriennale" in Prague, in protest over the designation of Taiwan's exhibition. A Chinese diplomat told the CTK news agency that China's objection was the designation of the stand simply as "Taiwan" rather than "Republic of China (Taiwan)". China considers Taiwan a breakaway province. The Quadriennale's management say they regret China's decision. More than 3,000 architects, designers, sound engineers, and directors from 52 countries are showing their productions in Prague until June 29.
Tuesday is going to be partly cloudy with occasional showers, and daytime temperatures reaching highs of 27 degrees Celsius.
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