Union leader warns revival of “Švarc system” would mean death of social state

One of the government’s suggestions for combating the economic crisis is to revive the so-called “Švarc system”. It’s named after Miroslav Švarc, a Czech building contractor who laid off all his employees in 1990 and immediately re-hired them on a self-employed basis, thus saving both him and them lots of money in tax and social and health insurance. The state later made the practice illegal, and Mr Švarc even spent a brief time in prison. However he was exonerated in 1995, and the Švarc system lives on – estate agents or plumbers, for example, usually work for just one firm but are not salaried employees of that firm. So should the system be extended to help the ailing Czech economy? Definitely not, says Josef Středula, president of the Czech Metalworkers’ Federation.

Josef Středula, photo: CTK

“Usually, every month, employees pay money into the state budget for the pension system, social system and health system, but this “Švarc system” will radically reduce this amount. Every 10,000 employees account for one billion crowns in the state budget, because the majority of contributions to the tax system comes from normal employees.”

But at a time when so many families are struggling amidst this financial crisis, when thousands of people will lose their jobs this year, surely any system which allows people to make more money for their families to survive must be welcome?

“Yes, but if people are losing their jobs – and during one month 50,000 people have lost their jobs in the Czech Republic – how is it possible that there will suddenly be all this work for people who are self-employed?”

Because it’s more attractive for the employer, because they don’t need to pay so much in tax and social and health insurance.

Photo: European Commission

“Yes but this is absolutely unattractive for the state finances. This is absolutely against people who have some problems, such as people who have disabilities, people who need help from the state. In a country of ten million inhabitants and approximately five million economically active people you can’t have five million businessmen! This is impossible. This is crazy. Because the main goal of such people will be to pay less into the state budget, and the state budget will be without money. The state will be dead.”

So if not the Švarc system and other such tools, what can the government do to tackle this crisis?

“First, they must look for a social dialogue between everybody. This is not just a dialogue between the government and NERV – the government’s special economic advisory body. They need to discuss this with both employers and employees. Second, they should look for a common approach at a European level, because the Czech Republic is responsible for the European Union for the first half of this year, and they must be active. Look for some common approaches, not just a Czech approach, because there are only a few tools that can be used for just one country. We need a common approach at the European level.”