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Published: Wednesday July 23, 2014 MYT 10:50:03 PM
Updated: Wednesday July 23, 2014 MYT 10:51:17 PM

Chaos as Czech parliament approves, then scraps, petrol tax cut

PRAGUE (Reuters) - The Czech Republic's coalition appeared to be in disarray on Wednesday after parliament approved a surprise cut in petrol tax and then overturned that decision an hour later after the finance minister objected to losing the revenue.

Lawmakers approved cutting petrol and diesel taxes by an estimated 14 billion crowns (404 million pounds) a year from 2015, as a rider to a bill meant only to give a tax break to farmers.

The vote, supported by some members of the ruling centre-left coalition, provoked an angry outburst from Finance Minister Andrej Babis, who said it was a windfall to petrol distribution firms and not translate to lower prices at the pumps.

"The 14 billion ... will go to distribution firms," Babis told the lower house of parliament. "And if you do not understand that, come for a training session."

He said the cut - by 2.50 crowns per litre on diesel and 1.50 crowns per litre on petrol - would also put Czech petrol taxes below minimum rates allowed in the European Union.

Deputies then agreed to revoke the decision.

The bill will not be presented to parliament again before Friday as deputies have called a recess.

"Politically I see this as an extremely dangerous way to push through the change... Unless it is not a violation of the coalition agreement when some of the coalition's deputies vote for laws fundamentally influencing budget revenues without consultation with the finance minister," UniCredit Bank chief economist, Pavel Sobisek, said.

"Then it is needed to change the coalition agreement quickly, or dissolve the coalition government," he said.

Social Democrat Prime Minister Bohuslav Sobotka criticised the rider's author, deputy Milan Urban - from his own party, and said a number of deputies were "completely disorientated" in the vote, news agency CTK quoted him as saying.

The centre-left cabinet is aiming to keep the state budget deficit at 100 billion crowns in 2015, similar to this year.

The overall fiscal gap is seen below 3 percent of gross domestic product both this year and next but Sobisek said the tax cut could push the deficit over that level next year.

It would also add to already strong anti-inflationary pressures in the economy. The central bank has kept interest rates near zero and weakened the crown to avoid deflation.

The fuel tax cut was planned around the assumption that it would spur sales at Czech pumps, outweighing the impact of the cut, from drivers in transit from west to eastern Europe, according to the text of the rider.

Babis rejected those assumptions.

Diesel in the Czech Republic cost the equivalent of 1.32 euros a litre last week, compared with 1.37 in Germany, 1.29 in Austria and 1.36 in Slovakia, Czech automobile club UAMK said.

(Editing by Jason Hovet and Louise Ireland)

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