Time running out for Czech PM to save government

PRAGUE (Reuters) - Czech Prime Minister Petr Necas made a last-ditch effort on Tuesday to win support from party rebels who are threatening to bring down his cabinet over an unpopular bill to raise taxes.

The Czech Republic has maintained investor confidence thanks to a relatively low debt load, but the centre-right government has been weakened by internal dissent, the unpopularity of austerity measures, graft scandals and heavy losses in regional and upper house elections in the past two weeks.

The group of about six backbench rebels in Necas's Civic Democrats (ODS) oppose the government's plan to raise income value-added and income taxes, which Necas says is necessary to cut the budget deficit below an EU-prescribed cap.

A working meeting of his backers and the rebels early on Tuesday failed to come up with any deal ahead of a parliamentary session later in the say. The assembly is due to begin debating the tax bill, with a final vote possible as soon as Friday.

In an attempt to force the rebels back into line, Necas has made the vote a confidence motion, meaning that if they abstain or vote against, his government is likely to fall.

Budget committee chief Pavel Suchanek, a member of the Civic Democrat working group, said a meeting of the party's members of parliament on Tuesday morning would show the way forward.

"The caucus has the decisive word," he said.

He said the government might have to take back its budget bill from parliament for reworking if there was no agreement. The government aims to cut the deficit to 2.9 percent of gross domestic product next year from 3.2 percent expected this year.

The rebels have so far not blinked, saying tax hikes would anger voters. The bill would raise value-added tax rates by 1 percentage point to 15 and 21 percent next year and also raise income tax for top earners.

"I still believe there can be a coalition proposal that will put the tax package in line with the ODS programme and the government's agenda, in such a way as not to raise taxes," one of the dissenters, Petr Tluchor, said ahead of the caucus meeting.

MOOD SOURING

The mood in the party has been souring in recent days as the rebel group showed no signs of being ready to compromise, party officials said.

Party leaders have questioned whether the real motivation of the rebels, who backed the tax increases in previous votes, was to remove Necas as prime minister or party chief at a congress on November 2-4.

"It is clear the main goal is to get Necas out," political analyst Vladimira Dvorakova said.

"The ideal situation (for the rebels) would be to go to the congress with Necas no longer prime minister. But they are still calculating what the price will be, because nobody wants to be responsible for the end of the government."

Necas could try to put back the final vote on the tax bill, until after the party congress, where he hopes to shore up his position.

But his position has been weakened by a rout in regional and upper house elections in the past two weeks. An opinion poll indicated on Monday that support for the ODS has dropped to 16.5 percent, its worst in 15 years.

If the government falls, parties could try to forge a new coalition. But Necas as well as his coalition partner, the conservative TOP09, and the centre-left opposition have all said that, if he loses the confidence motion, there must be an election.

Centre-left opposition leader Bohuslav Sobotka, whose Social Democrats lead opinion polls by a wide margin, told Reuters in an interview that an election could take place in early 2013.

His party's policies include increasing taxes for corporations and top earners, raising the overall tax intake by about 3 percent of gross domestic product from the current 34.7 percent.

(Additional reporting by Jason Hovet, writing by Jan Lopatka; Editing by Kevin Liffey)

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