Fiala cabinet unveils austerity package to get Czechia “in good shape”
The Fiala government has unveiled an austerity package aimed at reducing the country’s deepening state deficit and plans for a radical reform of old-age pensions. To understate the gravity of the situation the package titled “Czechia in Good Shape” was unveiled at a press briefing scheduled for five minutes to twelve – signalling the lateness of the hour.
For months now, the government had made it clear that the country’s public finances were heading for trouble and the public must prepare to shoulder the burden of far-reaching consolidation measures that would impact each and every member of society. At a press briefing on Thursday, Prime Minister Petr Fiala told Czechs the fat years were over and the lean years were ahead.
“Our main goal is to stop the spiraling deficit in public finances, to turn around the negative trend that was established by former populist governments. The deficit in public finances has been rising at a horrifying rate. If we do not hit the brakes now the situation will get out of control and our children and grandchildren will have to pay the price.”
The consolidation package, which was unanimously approved by the five ruling coalition parties, aims to save 94 billion crowns in 2023 and more in the years to come. It comprises 55 measures aimed at reducing state spending and boosting revenues.
They include scrapping subsidies for non-investment projects to the tune of 46 billion and lowering operational costs in the state sector, including saving on salaries to the tune of 20 billion crowns.
The whole tax system will be streamlined, corporate taxes will be increased by 2 percent and there is to be a mild progressive tax for individual entities. Twenty-two tax exemptions will be scrapped.
The present three VAT rates will be replaced by two, and while basic food and medicines will be in the lower VAT rate, the government plans to levy a higher tax on selected goods and services, among them alcohol, cigarettes and gambling.
In a separate package, the government presented its proposal for a radical overhaul of the pension system which will make it sustainable in view of the aging of the population – a task that governments have avoided for the past 30 years.
The main message is that in future years, pensioners will get less money from the state and will have to work for longer. The changes in the pipeline include changes to the system of calculating the retirement age which is now capped at 65, tougher conditions for early retirement and less generous pension hikes linked to inflation.
Now it is up to the government to pass the respective changes through both houses of Parliament but even more importantly, to communicate them well to the public and win broad support for the measures, which will inevitably be painful. The opposition will not make it easy for them and with general elections scheduled for 2025, commentators are asking whether the ruling five party coalition will be strong enough to stick by the austerity measures outlined as the elections draw near and they face growing public discontent.
