Coalition agreement on public financing

Representatives of the three ruling coalition parties have reached agreement on a reform package aimed at reducing the growing deficit in public financing. The proposed changes envisage a long awaited overhaul of the pension scheme from a continuously financed system to a savings based one, a tax reform and a slowing down of the wage growth in the public sector, among other things.

Coalition agreement on public financing

Milan Simonovsky, Libor Nemec, Vladimir Spidla and Bohuslav Sobotka, photo: CTK

Given the character of the centre-right coalition government the planned reform was a compromise born of long and heated negotiations. Deputy Premier Pavel Rychetsky has described it as "sufficiently radical, yet socially tenable" and finance minister Bohuslav Sobotka is determined to push it through both houses of parliament - or resign. Striking the right balance was complicated not just by the often conflicting demands of the coalition partners but by economic pressure stemming from the fact that neighbouring Slovakia, Poland and Hungary have effected radical reforms of their own. So has the Czech governing coalition finally produced a viable reform plan? Economic analyst David Marek:

"The proposed changes are necessary and are aimed in the right direction but in my opinion the reforms should go deeper. For instance, in view of the low corporate tax in Poland, Hungary and Slovakia. We can only survive in competition with them if we lower our corporate tax significantly - to 24 or better still to 20 percent, but 25% or over does not seem sufficient. On the other hand given the deficit in public finances I appreciate the fact that it is not possible to bring tax rates down as quickly as would be desirable."

This reform package is supposed to help the country survive competition on EU markets and for it to be able to join the single currency sometime near the end of the decade. Is this feasible?

"Yes, it is feasible, but that requires not only for this government but also for the next government to continue - along even stricter lines - the proposed reforms. So it is not just the responsibility of this government. It requires political will from all parties that would contribute to a broad consensus on these vital changes."

Neighbouring Slovakia and Hungary have approved tougher reforms than ours - how would you compare the situation?

"I am appreciative especially of the Slovak reform plan. But there is one big difference -and that is the balance of political power in Slovakia. Their government is stronger and able to push through a tougher reform. In the Czech Republic the fragile majority of the current governing coalition makes it extremely difficult to push through a truly radical and effective reform plan."

Is the Czech Republic seriously lagging behind the other candidate countries?

"Not so far. The other candidates also have high deficits in public spending and it is not yet clear whether the applied measures will scale down those deficits but I would say that to some extent we are behind - one to two years behind, I would say."

A final version of the government's reform plan is to be available in June.