Car scrapping incentive scheme scrapped after Klaus veto, but for how long?

The government’s car scrapping incentive scheme had been described as the “flagship” of the recently approved economic stimulus package, but President Václav Klaus believes it’s the scheme itself that should be scrapped. On Thursday he vetoed the stimulus package, arguing that measures such as providing people with incentives to buy new cars discriminates against other sectors of the economy.

President Klaus clearly believes the scrapping scheme is unfair, explaining on his website that it was “discriminatory, non-systemic, with many legislative mistakes, with a highly uncertain positive effect" and “ favours industry at the expense of other sectors of the economy and gives preference to short-term interests of several big players in car industry.“

The scheme was originally a Social Democrat proposal agreed as part of bipartisan talks with the Civic Democrats on mitigating the effects of the global economic crisis. The deal was struck back when the Civic Democrats were still in power, and the current interim government inherited it. But in vetoing the car scrapping scheme, President Klaus also halted plans to raise a tax deduction for families with children and to raise child and unemployment benefits.

Václav Klaus,  photo: CTK
The carmakers spoke of their dismay at the veto. The head of the Automotive Industry Association, Antonín Šípek, told Mladá fronta Dnes newspaper the scheme “has one fundamental and decisive factor – it works”. Supporters also say it would help the reputation of Czech carmakers among colleagues in other European countries.

Many countries have already introduced the scheme, with mixed success, and some accuse the Czechs of benefiting from their schemes while refusing to introduce their own. So Czech carmakers think not only would it stimulate domestic demand, it would also show solidarity and contribute to the pan-European effort to resuscitate the car industry.

Critics, however, point out that despite the fact that carmakers such as Škoda, Hyundai and PSA/Toyota all have big factories here in the Czech Republic, most cars sold in this country are actually imported, so it’s unclear how giving Czechs the equivalent of 1,600 dollars to trade in their old car and buy a new one would have much of an effect.

Finally many people have ideological objections to the whole idea of destroying old cars to sell new ones. Václav Havel, most controversially, said earlier in the year that Škoda Auto saying it must build more cars because people need jobs was like saying concentration camps must exist because camp guards and commanders need work. Not everyone, therefore, thinks Europe’s car industry is some sort of sacred cow that must be protected at all costs.

Most observers believe the car scrapping incentive scheme will ultimately be introduced in the Czech Republic. The measures were approved by parliament with 82 votes; to override the president’s veto, parliament needs 101 votes. It was a Social Democrat initiative, and the Social Democrats say the agreement should be honoured and expect the Civic Democrats to join them in overriding the veto.