Government’s pension reform under fire

In recent days the centre-right government has come under widespread criticism for its pension reform. The opposition has slammed it, the government’s own economic advisory council has expressed serious reservations, President Klaus has criticized it for “lack of debate and political consensus” and several hundred people turned out to demonstrate against it outside the Office of the Government on Friday.

The protests against the government’s pension reform, photo: CTK

Despite the criticism, the government is pushing ahead with the reform bill, hoping to see it approved by the end of the year. Radio Prague spoke to one of its many critics, political analyst Jiří Pehe about some of the problems involved.

“I think that the government is definitely rushing this reform and I do not think it is reasonable. A reform of this proportion needs to be discussed and there needs to be some consensus with the opposition because such reforms are not adopted for 4 years or 8 years, but for a generation or two. For that the government clearly needs to reach some kind of compromise with the opposition otherwise the next government –if the opposition wins – will change this reform or abolish it. So we definitely need more debate and we need to find some kind of consensus across the political spectrum.”

One of the most controversial aspects of the proposed reform is the introduction of a private pillar of pension fund provision which many people see as a scam? Why cannot banks offer this service?

“Well, ten, twenty years ago there was a widespread opinion in economic circles that a second private pillar in pension reform is a good thing. In the meantime, many countries have retreated from private pension funds for good reason. First, they seem to be very vulnerable in times of economic crisis and secondly in post-communist countries in particular there is a real risk that such funds may be “tunneled” as we say, that there may be all kinds of economic fraud and asset stripping and so on, unless the government makes sure that this is almost impossible. But, unfortunately as we have seen in the past in the Czech Republic no such private fund or enterprise is totally impervious to attacks by all kinds of economic criminals. So I think that this is a real danger and certainly I think that if the government is able to generate, and willing to generate, 60 billion crowns a year by raising taxes –by raising the VAT to a uniform 20 percent – it could be used to bolster the present system which has a deficit of some 25 billion crowns and there would still be enough money to create reserves for the future and this is exactly what most people find strange –that the government is willing to raise taxes, generate a lot of money and instead of improving the current system it wants to create an entirely new system that is highly risky.”

How urgent is the question of a pension reform – does the Czech Republic have time to strive for political consensus, because the government is acting like there is not a minute to lose in view of demographic pressure – what do you think?

Photo: European Commission

“Well, there are some economists –and they certainly could not be described as left-leaning - who say that this is just a scam, that the government is creating an atmosphere of urgency because it wants to push this reform through. Why it is rushing so much is a different issue – one could suspect heavy lobbying behind the scenes from various private pension funds and entrepreneurs who are interested in creating the system, but in reality there is really no rush. The Czech pension system is not about to go bankrupt –there is a deficit of some 25 billion crowns but it has only been there for a few years since the economic crisis in 2008 – before that the system was in surpluses. And certainly if the government has the courage to increase taxes and we can see that it does, then there will be enough money to stabilize this current system for years to come and give us more time to discuss whether we really want to privatize part of the system.”