Czechs brace for hard times
As the country’s centre-right parties hammer out an agreement on a future government one message is coming across loud and clear – whatever the deal - it will involve severe cost-cutting measures in the months and years to come. Plans on the table envisage job cuts, salary cuts, halting state investment projects and, where possible, merging departments or ministries.
Saving has become the operative word in Czech politics – and is likely to remain so until the country gradually brings down the ballooning public finance deficit from the present 5.3 percent of GDP targeted this year to under three percent as required by the Maastricht criteria for euro adoption. The country’s caretaker finance minister, Eduard Janota says that another 10 billion crowns may have to be saved this year for the country to meet its target.
“I am waiting for a full report on this year’s tax revenues before ordering a second round of cuts this year. We should know where we stand by June 10th – and it is possible we will need to save another 10 billion crowns in the public sector. I personally would prefer a selective approach, but it might be necessary to introduce cuts across the board since every head of department naturally argues that his department’s work or investment is more important than any other.”
Meanwhile, the Civic Democrats, TOP09 and Public Affairs, who are expected to take over in the late summer, are planning a big shake up in the public sector. On the cards is a planned 5% cut in the wages of judges and elected officials –to demonstrate that people in high office are ready to share the burden. They are also considering a 10 percent reduction of public sector employees – a move that would be supplemented by more outsourcing and merging of departments.
The plan is to save as much money as possible in the public sector before going on to raise taxes. Minister Janota says that while tax hikes are expected to be the last option on the cards, he does not think that the next government can sustain the EU’s proposed convergence programme without them. Ideally, cuts in expenditures should make up two thirds of the money saved, with one-third covered by higher taxes. The tax hikes proposed would concern indirect taxes – for instance raising the bottom 10 percent VAT rate to 12 percent and if need be to sweep in a tax on company dividends.
The three parties are preparing to scrap or freeze non-essential investment projects such as an environmental clean-up contract that would have cost around 115 billion crowns (over 7 billion dollars) - the country’s most expensive project ever, and projects on electronic data boxes and electronic tags which would have enabled prisoners to serve time under house arrest.
