Czech leaders agree further cuts to keep coalition alive

(PRAGUE) - Czech governing coalition leaders agreed further austerity cuts on Tuesday as part of policy revamp designed to keep the three-party centre-right government from splitting apart.

"I suppose the agreement (on cuts) will be approved by a cabinet vote on Wednesday," said Prime Minister Petr Necas.

The coalition backed by 115 seats in the 200-seat parliament expects to cut the public deficit to under the EU's maximum threshold of three percent of gross domestic product (GDP) in 2013 and 2014 from 3.5 percent expected in 2012.

Ministers have agreed to raise both value-added tax rates by one percentage point to 15 and 21 percent, curb pensions increases, and reduce government spending to achieve the needed savings.

"In 2013, the public deficit will reach 2.9 percent of GDP... the deficit for 2014 will be 1.9 percent of GDP," said Necas, whose right-wing Civic Democrats form the government with the right-wing TOP 09 and centrist Public Affairs parties.

Necas initiated the policy revamp last week after the small Public Affairs party gave up its demands for a cabinet reshuffle or a snap election after polls shown it would have lost ground with voters.

The coalition government has angered voters with painful reforms and cuts, and several corruption scandals have also damaged its ratings.

Public Affairs lawmaker Vit Barta was recently put on trial on charges of bribing party members, while Civic Democrat lawmaker and former Prague mayor Pavel Bem allegedly let an influential entrepreneur take decisions for city hall, according to leaked wiretaps.

But Necas said it made sense "to carry on with this (government) project because it fulfils its fundamental goal -- budgetary responsibility."

The Czech Republic, a country of 10.5 million, joined the EU in 2004 and is obliged to join the euro under its entry terms, but it has repeatedly said this would not happen in the near future, given the eurozone debt crisis.