Income tax for the rich to go up to compensate the flood damage

To compensate damages caused by recent severe floods in the Czech Republic, the cabinet is considering to temporarily increase income tax for the rich. All those who earned more than a million crowns a year would have to pay to the state 37 percent from their annual income over the next three years. Alena Skodova has this report:

The rich would thus pay 5 percent more on any salary amount exceeding 90,000 crowns. 90,000 crowns a month - that's slightly under 2,500 US dollars - and there are only about ten thousand people in the Czech Republic who earn that much.

The proposal has been welcomed by the Communists and is likely to be passed by parliament even if not all the parties that form the government coalition agree, because the Communists and Social Democrats have enough votes to have it approved. The right-of-centre Freedom Union and Christian Democrats are showing prudence in the matter, as one of their major pre-election promises outlined no new taxes. The only party to disagree completely are the opposition Civic Democrats.

I spoke with economic analyst Petr Zahradnik from The Conseq Finance company and asked him whether the current proposal was feasible:

"I think it's a feasible solution, but I'm not quite sure if it's the best possible solution, I think there's also a possibility to increase or to adjust the so-called indirect taxes, I mean for example consumption tax for alcohol beverages, tobacco and fuels, there's also a possibility to increase the standard rate of value-added-tax, but especially there's a possibility to cut some public expenditures in the state budget or in any public finances."

Yes, because they hope to collect only one billion crowns a year from those higher taxes - is it enough in a 700 billion state budget?

I think that the proposed increased income tax is not an efficient economic tool or instrument. It's rather I would say a humanistic reaction to the situation after the floods, it's not a very sufficient instrument and I think it's rather a symbol of solidarity of, say, richer people with people affected by the floods.

And the measures that you've mentioned in your first answer - do you think they would collect enough to compensate for the flood damage?

First of all I think that any kind of state help or state assistance is only secondary. In my opinion the costs connected with reconstruction and recovery of the damaged assets must be financed from private sources, as well as from sources of insurance companies. But of course a lot of assets are state-owned and for this purpose the state must cover these expenditures from its sources. There's a special chapter in the state budget to cover let's say extraordinary expenditures and I think that the state will fulfill its obligations in this field."