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Published: Wednesday December 11, 2013 MYT 8:50:02 AM
Updated: Wednesday December 11, 2013 MYT 8:50:58 AM

Czech parties reach deal to form centre-left government

PRAGUE (Reuters) - The Czech Republic's Social Democrats reached a coalition deal with two other parties late on Tuesday, 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.

The leftist Social Democrats, winners by a slim margin of an October parliamentary election, are looking to return to government for the first time since 2006 in a coalition with the centrist ANO movement and the Christian Democrats.

Tax policy had been the main sticking point in coalition talks, with ANO, founded two years ago by billionaire businessman Andrej Babis, opposed to higher taxes.

"It is definitely done. We have agreed on controversial areas that have lingered until now," Bohuslav Sobotka, the Social Democratic party chairman and likely next prime minister, said after talks with the parties that lasted more than five hours.

Sobotka and the deputy leaders of the other two parties said the parties would give final details of their coalition agreement later in the week when they unveil their programme.

Sobotka said some tax changes could come in 2015.

The parties have aimed to wrap up coalition talks in the next week so that Sobotka could present his government to President Milos Zeman by the end of the year.

Anti-corruption movement ANO's opposition to tax rises has pushed the Social Democrats to back off plans for now to lift taxes for banks, telecommunications companies and utilities to boost budget revenue. Sobotka said the question of a so-called sector tax was addressed in the coalition deal but did not give further details.

"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 surged in the polls this autumn and finished a strong second in the October vote, winning voters that had in the past supported more established centre-right parties.

A centre-right government collapsed in June following a bribery and spying scandal. Its popularity had been dented by austerity measures that helped bring down the budget deficit but led to a six-quarter recession that ended earlier this year.

The centre-left parties have agreed to keep the central European country's budget deficit below the European Union-prescribed limit of 3 percent of annual economic output but also want to boost spending to help the recovering economy.

(Reporting by Robert Muller and Jason Hovet; Editing by Paul Simao)

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