Governing coalition agrees on tax reform

The Czech ruling coalition on Sunday agreed on the framework for the second phase of the public finance reform. The agreement reach entails lowering the basic 22 percent value added tax rate to 19 percent as of May and leaving the current 5 percent rate at the present level. The move will increase the prices of some goods and services and lower the price of others. The government expects the changes to bring an additional 17 billion crowns to the state budget but wants to pay the money back to citizens and companies. Families with children and pensioners will allegedly get 6 billion crowns, 2,000 crowns per child and 1,000 per pensioner, while businesses should gain 11 billion thanks to faster write-offs.

Governing coalition agrees on tax reform

Governing coalition, photo: CTK

Although the coalition is happy with the agreement reached, economists are pouring cold water on the government's reform plans, describing them as "too little, too late". They point out that the extra money gained will be re-distributed in a "socialist" manner and that by coincidence this will happen a couple of days before the elections to the European Parliament.

Economic analyst David Marek:

"I would like to say that it was possible to go further. The current public finance reform is not sufficient to bring the steep deficit in public finances below the set Mastricht criteria - that is 3 percent of the GDP. So currently the second phase of reform could be seen as a change of the expenditure schedule but not a diminishing deficit."

The government expects the changes to bring some 17 billion Czech crowns to state coffers but it wants to channel the money back to citizens and companies -families with children will get something as will businesses thanks to faster write offs - do you think that those decisions were wise?

"Yes, this could work. Especially tax credits for families. This is something that we can see in Great Britain and the United States and it seems to be quite a good social policy measure without destroying work incentives - so I think this could work, yes."