Is flood reserve proposed by Finance Ministry solidarity fund or poll tax?

10-08-2010

In the wake of the latest floods that hit parts of the Czech Republic over the weekend, the Czech government has come up with an idea of how to help pay for the damages. Finance Minister Miroslav Kalousek wants every tax payer to pay an extra 100 crowns into what he calls a “flood solidarity reserve”. But critics say that the government only wants to raise taxes, and is using the floods as cover.

Photo: CTKPhoto: CTK Water levels in most parts of northern and southern Bohemia are slowly receding and people have begun counting the damage inflicted by the floods. The Czech government immediately released 40 million crowns to the worst affected areas and will be sending more.

But the total cost of the floods is now estimated to exceed four billion crowns, or more than 215 million dollars. That is very bad news for the incoming government which promised to cut the budget deficit and reduce public spending. Finance Minister Miroslav Kalousek has therefore come up with an idea to set up what he calls a “flood solidarity reserve”.

“We would like to deal with this systemically. We want to create an account in the state budget, called a ‘flood solidarity reserve’, which would get payments from income tax.

“What I propose is that every tax payer’s tax credit would be lowered by 100 crowns a month. Every economically active person who pays taxes would contribute 100 crowns a month to this account, which would generate some 4.5 billion crowns a year.”

Miroslav Kalousek (right), photo: CTKMiroslav Kalousek (right), photo: CTK Floods now hit the Czech Republic more and more often but should no such calamity occur in a particular year, the funds could be used for flood control and similar measures.

But the proposal has met with serious criticism. Some, such as the opposition Social Democrats, suggest that instead of raising taxes, the government could issue flood bonds, as it did in 2002. Others believe the new measure is just another version of the poll tax. Jan Macháček is a commentator for the weekly Respekt.

“I actually think this is a version of the poll tax which was invented by Margaret Thatcher more than 20 years ago. Everyone who followed British politics at the time knows that for Ms Thatcher, this was a political suicide since it’s considered very unjust and politically very controversial.

“It’s more than flood tax because that means that everyone is paying the same percentage from his or her income; this suggests that everyone pays the same amount of money. So it might look politically courageous but I’m afraid it might be suicidal for the government.”

It also seems that Minister Kalousek first conceived the plan before the floods hit parts of Bohemia over the weekend. It was part of a broader scheme that also includes lowering child tax credits. Ilona Švihlíková is a professor at Prague’s College of International and Public Relations.

“I think we should mention that this idea of reducing tax credits for all taxpayers comes from Miroslav Kalousek who proposed it before the floods. However, you can’t find anything like that in the new government’s policy statement and I believe he just used the floods as a sort of cover to push through this measure.”

The new measure will now be debated in the government; the Finance Ministry hopes it will be eventually approved by Parliament in the autumn, and enter into force next year.

10-08-2010