2008: a year of reforms

The new year will radically affect the lives of ordinary Czechs. The reform package of Prime Minister Mirek Topolánek's centre-right cabinet has introduced far-reaching cost-cutting measures intended to curb the country’s steep deficit in public finances. In short: the prices of nearly all products and services have gone up while, to make up for it, income taxes have gone down.

For Czechs, the past year has been a good one. The growing economy, the strengthening crown, the low unemployment rate and the rising salaries will make it a year to remember. The latter will almost certainly be true of 2008 too: the extent of the reforms which have come into force on January 1 is unparalleled in the last decade.

Among the first to experience for themselves the changes of 2008 were those who had to seek medical assistance as a result of the wild New Year’s Eve celebrations. Every visit to an emergency ward now costs 90 crowns, or five US dollars. The health care reform will also make people pay 30 crowns for a regular visit to the doctor’s and another 30 for each item on their prescriptions. Should you need to be hospitalized, you will be charged 60 crowns for each day spent there.

And the reform of the health sector does not stop there. The rules for taking sick leave are changing. As of now, employees will receive no insurance payments whatsoever on the first three days of their sick-leave, and payments for the entire first month will also be lower than before. The government hopes to cut down on the average sick leave in the Czech Republic, the longest of all the 27 EU countries.

A new environmental tax included in the reform package introduced at the initiative of the Green Party will make environment-unfriendly fuels and energies more expensive, including coal, electricity and heat. These are expected to cost two to ten percent more than in the past year.

The fiscal reform introduced in 2008 will see the VAT increase from five to nine percent on a number of goods including food products, drugs, books and newspapers, hotel accommodation, tap water, public transport, social and health care, sports and culture admissions and other commodities. The Czech government decided not to make use of an EU tax exemption on these goods to make up for the losses caused by the lower income tax.

The equal income tax of 15 percent is the flagship of the government’s fiscal reform package. Together with lower taxes for private companies, this is the main tool to compensate for higher expenses. But as the opposition pointed out, for the majority of employees with a monthly income ranging between 17 and 25 000 crowns (or between 900 and 1400 US dollars) the tax reduction will be very small.

We will see whether or not the growing economy and higher salaries – which are expected to rise by eight percent on average in 2008 – will calm the unease with which many Czechs anticipate the impact of the reforms on their family budgets.