Current Affairs Government to spend 40 billion crowns on crisis-management package

Lower social insurance, faster depreciations of corporate property, state guarantees for loans, and more flexible employment rules. Those are some of the key measures the government wants to introduce to address the country’s ailing economy, hoping to reverse the falling GDP and to create between 50,000 and 70,000 new jobs. The package, designed by the government’s economic advisory board, was approved by the government on Monday. Economist Tomáš Sedláček is a member of the advisory board and one of the plan’s co-authors.

“The major focus, the major philosophy of the whole package is on supply-oriented measures. We really do not believe very much in fiscal stimuli in terms of increasing demand. We are a small, open economy, and stimulating demand would really make no sense other than being a populist move. The vast majority of the proposed measures would make sense even in a situation where there is no economic crisis.”

The emphasis on supply, rather than demand, is also the major difference between the Czech crisis-management plan and the packages of some other EU countries, most notably Germany. Other proposed measures include higher government spending on education, science and research, lower forward payments on taxes, and boosting investment into housing and transportation.

Tomáš Sedláček The plan will now go to Parliament where a vote on the package is expected on Wednesday. If approved, the government will spend over 40 billion crowns, or more than 1.7 billion US dollars on its implementation. Contrary to previous reports, the government will not introduce car subsidies, a measure adopted in Germany. Mr Sedláček says it would make no sense just to give people money to spend.

“Instead, we have chosen to decrease social burdens and social contributions for everybody who is in the lower and middle income bracket. This will significantly help not only the automotive sector but all other sectors equally. So the other principle that we have been following is to take such steps that will be generally applicable to everybody, rather than make exceptions just because this time round, it’s the automotive industry; next time round it’s going to be the glass-making industry, and then what, the spoon producers?”

While the government believes the crisis plan should produce results almost immediately, some experts are warning that it might complicate the future adoption of the euro in the Czech Republic. If the country’s economic growth drops by another two percent this year, the country’s deficit will reach 150 billion crowns – meaning that the Czech Republic will no longer comply with what are known as the Maastricht criteria for euro adoption. But Tomáš Sedláček of the government’s advisory board says that dealing with the crisis is a more pressing priority.

“This will be the case for the whole of Europe and all of our civilization, including the US, Canada, Japan, and so on. These countries will unfortunately see a larger share of deficit in their GDPs. And it will take a long time before we get balanced again, and I think that one of the reasons why this crisis is so deep is that we have not been fiscally prudent in the past seven years when we had a very positive fiscal growth.”