Business News
A government's proposed fiscal reform - too radical or too mild? The unemployment rate drops below 10 percent for the first time this year. The Czech industry records the quickest output growth in six months. The Plzensky Prazdroj brewery is to double the production of its famous premium brand Pilsner Urquell.
Fiscal reform getting shape
The three parties in the ruling coalition have outlined much needed fiscal reforms aimed at reducing the growing deficit in public finances. The proposed changes include long-awaited reform of the pension system, tax reform, as well as a reduction of the number of state bureaucrats and slowing down of the wage growth in the public sector.
The pension system is to change from the current continuous financing to one based on individual savings accounts. At the same time, the retirement age will increase to 63 years for both men and women. Other changes in the social sphere include a more precise targeting of social benefits to those really in need. Sickness benefits are also to be reduced in the first days of illness in order to eliminate widespread misuse of the system. For comparison, Czechs spend on average 28 days a year on sickness leave, while in the EU, it is a mere 7 days a year.
In the tax sphere, whereas indirect taxes, including the consumer tax and VAT will increase, the corporate income tax will be lowered to 24 percent and the personal income tax will remain the same.
The government believes the proposed measures are sufficiently radical, yet socially acceptable. However, independent economic analysts as well as right-wing opposition politicians have criticised the proposed reform steps for being too mild. One of the possible problems is corporate tax - neighbouring Slovakia and other east European countries have introduced even lower tax rates and some fear companies might relocate their business to more favourable countries. 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."
Unemployment falls below 10 percent
The Czech unemployment rate has fallen below ten per cent for the first time this year - to 9.6 percent in April, but the trend being seen as a seasonal fluctuation rather than a reversal of a long-term rising trend. The lowest jobless rate was recorded in Prague, and some districts of central and south Bohemia - all below 5 percent. The situation remains serious in some parts of Moravia and northwestern Bohemia, which register jobless rates above twenty per cent.
Another town in northwestern Bohemia, Louny, also has a high unemployment rate of 17.4 per cent. According to the head of the labour office in Louny, Petr Zahorik, the region has a chance for improvement:
"In the past, the district of Louny used to be an agricultural area without any industry. Now there are about ten plants being constructed by foreign investors. We expect about three thousand places of work to be created by the end of 2005."
Industrial output accelerates
The export-oriented Czech industry recorded the quickest output growth in six months in March, rising a faster-than-expected 7.0 percent year-on-year. The Czech Statistics Office said industrial output growth accelerated from a 5.2 percent rise in February to post a cumulative 6.3 percent increase for the first quarter. The Statistics Office said March growth was driven by the production of trucks and truck parts, car tyres, mining of sandstone and other construction stones and agriculture and household equipment. The output of computer assembly plants, which had been enjoying a rapid growth over the past months, dropped as did the production at domestic leather shoe factories. Many Czech companies are dependent on exports to the faltering economy of the neighbouring European Union. Analysts are predicting industry will cool off in the coming quarters as some manufacturers, such as the TV tube plant of LG.Philips Displays, feel the impact of slack export demand. For the whole year 2003, analysts predict a five-percent industrial output growth.
Pilsner Urquell production to double
The Plzensky Prazdroj brewery in Pilsen, West Bohemia, will double the production of its famous premium brand Pilsner Urquell. Prazdroj's owner, the world's second largest brewer, SABMiller Plc, has approved an investment amounting to millions of U.S. dollars to build a new brewing house. Prazdroj sold nine million hectolitres of beer last year, up from eight million a year ago.
