Finance minister tells Czechs to brace for succession of lean years

Although the Czech government has refused to sign up to the EU’s fiscal discipline pact, frugality has become the order of the day and the finance minister has warned the nation that, come what may, fiscal discipline will be observed in the interest of bringing the country’s public finances under control. On Monday the cabinet’s economic ministers are meeting to debate austerity measures for 2013 which far surpass those previously undertaken.

Miroslav Kalousek

Economic crisis or not, Finance Minister Miroslav Kalousek is determined to adhere to his plan of gradually reducing the gap in public finances to 3.2 percent of the GDP this year, 2.9 next year, 1.9 in 2014 and securing a balanced budget by 2016. So while Czechs are still getting used to forking out more money for goods, services and medical treatment, the finance minister is preparing a set of austerity measures that will make this year’s price hikes look like a warm-up for the trials to come.

Falling economic growth and lower tax revenues have led the finance minister to revise his calculations for this and the coming years. This year ministries and public institutions will have to save another 24 billion crowns from the money they were promised. Ministries will be required to further cut operational costs and some are even considering lowering employees’ wages. The austerity measures planned for 2013 are targeted to save 42 billion crowns from state coffers and a staggering 84 billion crowns in 2014. If the minister has his way, the cost cuts will affect each and every citizen – from newborns to seniors, the rich and the poor. As minister Kalousek says this would require strong political backing from his coalition partners.

“Such far-reaching changes would not be possible without legislative amendments – amendments to the social sphere and to the tax system.”

Zbyněk Stanjura

The proposal on the table includes a unified 20 percent VAT – (presently the country has a dual rate VAT of 14 and 20 percent) a raise in individual taxes from the present 15 percent to 16 percent, higher taxes for people making over 100 000 crowns a month, a freeze on old-age pensions for a period of three years and no more maternity grants. Even the minister’s coalition partners who will be asked to raise their hands in favour of the austerity measures admit the proposed reforms are exceptionally tough. Zbyněk Stanjura from the Civic Democrats is cautious in taking a stand.

“The proposed reforms are debatable. It is clear they will be extremely unpopular, but they may have to be undertaken.”

While higher taxes for the rich and a one percent hike in individual taxes may win approval there is likely to be a fierce battle over the unified 20 percent VAT rate which would send the price of food – now in the 14 percent bracket – soaring.

The opposition Social Democrats have denounced the proposed changes as socially unacceptable. Jeroným Tejc is head of the party’s parliamentary group.

“This is a cynical present from the finance minister stemming from his inability to collect taxes. Everyone is being asked to pay for it – especially those living on a very small income.”

The opposition may rant against the proposed measures but is likely to have little say in it. The battle will be fought amongst the three parties of the coalition government who together have a strong majority in Parliament. Despite furious rows in the past they have so far managed to push through important reforms and are strongly motivated to see them through.

Finance Minister Miroslav Kalousek says he is open to any debate –except a debate on the overall figure that needs to be saved.

“What I am not prepared to accept is a softening of the austerity measures. There is a lot that can be changed but the resulting measures must be such that together they will save the necessary finances and allow us to meet our set goals in reducing the gap in public finances.“