The Czech government on Wednesday approved a belt-tightening budget for 2011 limiting the public finance deficit to 135 billion crowns or 4.6 percent of gross domestic product. The budget proposal is based on a series of controversial cost-cutting measures that –in one way or another - will affect all groups of the population.
Photo: Barbora Kmentová
Prime Minister Petr Nečas announced late Wednesday that the cabinet had jump-started a long-term austerity plan that should end with a balanced state budget in 2016. The austerity measures include a 10 percent wage cut for public sector employees, curbing or freezing investments, saving on sickness, maternity and family benefits and slashing state incentives for building savings accounts. For the first time in the country’s history the president’s income will be taxed, as will pensions above a certain sum. Unemployment benefits will be reduced and fewer people will be eligible to ask for support. Everyone will pay an extra 100 crowns in taxes towards a flood fund that is to help the state deal with flood damage. In short, next year the country will have to operate on 27 billion crowns less than it did in 2010.
Miroslav Kalousek (left), Petr Nečas, photo: CTK
The government’s austerity plan sent 40,000 people into the streets of Prague earlier this week and a flash poll indicates that 80 percent of Czechs believe the planned measures to be over the top. However the centre right cabinet –which calls itself a government of fiscal responsibility – has a comfortable majority in parliament and is not about to relinquish a unique opportunity to put the country’s public finances in order. Finance Minister Miroslav Kalousek said it was essential to jump-start the reform, painful as it may be.
“2011 will be a year of radical reforms in expenditures and revenues and the legislation will be amended accordingly. This will pave the way for a gradual reduction of the deficit year-by-year with a targeted deficit of 3.5 percent of GDP in 2012 and a 2.9 percent deficit in 2013.”
Trade unions' protests, photo: CTK
The only concession which the government made after talks with trade unions is delaying a planned amendment to the labour code which would have changed the way public sector employees are paid –significantly reducing fixed salaries and increasing bonuses for performance. The proposed change is part of a broader set of measures which trade unions have described as the biggest attack on employees rights since the fall of communism. Although the government’s concession has stilled protests for the time being, observers are expecting a hot autumn. And the opposition Social Democrats are only too ready to fan the flames of growing public discontent, saying reforms could be undertaken without axing jobs and cutting salaries.
Although, given the balance of power in Parliament, the opposition has no means of blocking the 2011 draft budget, it can still rock the boat in connection with the planned healthcare and pension reform which may play havoc with the government’s long-term fiscal targets.
