Trade union group fears that government cuts will weaken stagnant Czech economy

The Czech government is debating continued austerity measures, hoping to save 23 billion crowns in 2012, 42.4 billion in 2013 and a whopping 84.4 billion in 2014. But the plans have been met with opposition from trade unions, who are highlighting that the cuts could lead to as many as 24,000 public sector job losses and include layoffs of as many as 17,000 teachers as well as 3,500 police officers within the next two years. Jaroslav Zavadil, head of the Czech-Moravian Confederation of Trade Unions recently called this “a path to hell, which will destroy the public sector.”

Photo: archive of Czech Radio
Austerity, austerity and more austerity. Those were the credos of many European governments hit by the effects of the 2008 global economic crisis. But today, many – such as Great Britain - are finding that austerity measures have led to economic stagnation and rising unemployment. The Czech government is presently debating plans to significantly reduce the public sector workforce over the next several years as part of its efforts to balance the budget. Plans include 12 billion crowns in savings by fusing ministries and reducing bureaucratic staff. At a recent conference of his Civic Democratic Party, PM Petr Nečas signaled that the proposed cuts will be far reaching. This has raised alarm bells among public sector groups.

Martin Fassmann is an economist at the Czech-Moravian Confederation of Trade Unions. He echoes the sentiments of his organization that cuts could devastate a weak economy and thus end up exacerbating the deficit, which according to EU figures currently stands at 124.2 billion crowns and 3.7% of GDP.

Martin Fassmann,  photo: CTK
“The government is planning 23 billion in cuts for this year and then more than 90 billion in cuts over the next few years. Further, this 23 billion is designed to curtail the planned deficit in the state budget that was approved a few months ago. We aren’t against cuts per se, but rather we believe that this is the time to begin a debate about economic politics and the government’s approach to so-called reforms. It’s not just about the fact that the government wants austerity and we don’t – that is the wrong way to put it.”

The government is preparing reforms both on the revenue and spending sides. This includes controversial – though still not finalised plans to increase VAT levels on food and medicines – ending existing multiple rates and creating a unified 20% rate as well as income tax increases and controversial pension reforms. Critics argue many of these ideas will hit the poorest Czechs most, with increased costs-of-living and effectively lower pensions – and that the planned cuts will merely exacerbate this. Martin Fassmann again:

Photo: Štěpánka Budková
“At this time, when we are seeing economic stagnation and likely even recession, to undertake relatively large cuts in public finances is entirely counter-productive and even dangerous. One should also add that Czech finances are currently having to deal with three separate deficits. The first is the systemic deficit of the public finances of 105 billion crowns planned for this year and this already budgets-in cuts of 30 billion against the previous year. The second deficit is as a result of the fall in economic growth and represents another 23 billion crowns of expected revenue gone, which Finance Minister Kalousek now wants to cut. And the third deficit is the one that will come about as a result of pension reforms. All we are saying is at this time to try and tackle these three deficits as well as the one created by a government deficit reduction plan designed two years ago – is simply absurd.”

The Czech-Moravian Confederation of Trade Unions made this very point in a recent publicity campaign, seeking to warn against the effects of such rapid cuts. Meanwhile, PM Petr Nečas has been defending his plans, arguing, for example, that many Czech secondary schools have double the capacity than they require, and that greater efficiency is the key to ensuring continued Czech prosperity. But Martin Fassmann remains unconvinced:

Petr Nečas
“Not only will these plans suffocate all hope of economic recovery, but they will also contribute towards Czech decline. The effects of these measures will be a drop in real wages and pensions. This will then lead to a 10% to 12% fall in consumption. Add to that, the effect of public spending reductions. What this all means is that the proposals that the government plans will likely reduce GDP output by 4-5%. This will then have another knock-on effect: the government’s existing deficit reduction figures won’t be met and the deficit we threw out of the door will come flying back in through the window. So what we are saying is that all of this leads to a fall in the quality of lives not just for pensioners but for ordinary Czechs too and all of the sacrifices that they will make will be for nothing. You simply cannot cut your way to a balanced budget.”