Incoming coalition government misty on many macro economic goals

Photo: Barbora Kmentová

As far as the big economic picture goes, the incoming coalition government has filled in part of the picture as regards its priorities and promises. But a lot of questions have been left unanswered or up in the air.

Photo: Barbora Kmentová
If the devil is in the detail, then the economic plans of the incoming government look like they have been authored by a coalition of saints.

Many decisions that threatened to divide the uncomfortable looking centre-left government have been delayed till later. As a result, many Czech commentators have complained of the bland appearance of the program compared with the detailed road maps thrashed out in the past by incoming administrations.

But the Social Democrat, ANO, and Christian Democrat leadership say they need time to get a clearer picture of the Czech economic outlook and that the detailed programmes of the past quickly came unstuck.

The overriding target of sticking to a central government below 3.0% of gross domestic product is clearly stated. How that can be squared with promises to increase pensions payments and the minimum wage as well as measures to boost economic growth has still to be seen.

As regards central government revenues, there will be no new taxes in 2014. But the Social Democrat goals of cutting current value added tax rates on prescription drugs, books, and childcare items will take effect from 2015. A tax on some sectors, such as banks and power companies, is envisaged to cover some of these costs but will not be able to meet all of them.

The incoming administration also vows to get tough on tax evasion and plans to scrap all tax write offs for the self employed who consistently fail to declare a profit and lower the limit for cash payments.

The coalition program also says that it wants to find more funds for building infrastructure by squeezing the every day government spending. Many previous governments have made similar pledges, but with big ticket items like social security and unemployment payments accounting for around 40% of central government spending, it has proved an impossible goal in times of recession or weak growth.

Photo: Filip Jandourek
Big Czech construction projects, especially new stretches of motorway, have often been controversial in recent years with seemingly well founded suspicions that tenders are rigged in advance and taxpayers are paying through the nose for a sub-standard result. Cost analysis of the investment costs of all major construction projects over K50 million will therefore be demanded in advance as a matter of course.

On trade, the nascent government says it will back an aggressive policy to boost Czech exports using soft loans for buyers and guarantees to sellers as well as a wider role for the state institutions and ministries now involved. Research, innovation, promotional of better technical skills and education are described as the building blocks for prosperity.

On agriculture, the coalition says it will seek to reverse the growing Czech trade deficit in most foodstuffs and put the clock back around 20 years to a time when home grown and produced food featured on most Czech plates.

The incoming coalition's determination to keep its options wide open is perhaps most clearly seen over energy policy.

Here, it says that the question of whether current coal mining limits are lifted will be dealt with as part of the country's wider energy strategy which should be finalized this year. But there are no clues to which way the debate will go.

The coalition also treads very carefully around the question of whether two new nuclear rectors should be build at power company ČEZ's Temelín site. ČEZ wants the profitability of the massive construction project underpinned by government guarantees for the price of electricity from the new capacity, a pretty open ended commitment looking so far in the future. Here the program says that it will support construction, but only if it advantageous to the Czech state. How that will be worked out is left unsaid.