14-06-2001

Industrial production up again

New figures showed industrial production growing year-on-year by 11.4 percent in April. Increasing foreign and domestic investment was fuelling the rise, according to the Czech Statistics Office. The average wage saw an 8.1 percent year-on-year rise, growing to 13,713 crowns per month.

Czechs threaten reciprocal measures on free movement of services

The Czech Republic has threatened reciprocal measures if Germany and Austria insist on restrictions on services provided by Czech companies when the country joins the EU. The Czech Foreign Minister Jan Kavan called on the EU to provide sufficient arguments for the intended restrictions, and also asked the Union to let Czechs join their labour market freely as soon as the Czech Republic joins the EU. The country has now closed 19 of the 22 chapters

Gas prices on the rise

The Energy Regulation Office has allowed Czech gas prices to rise by an average of 7.5 percent as of July 1. The price hikes range from 2.3 percent for small corporate customers to 11.7 percent for households. The Office said that the decision reflected the unfavourable development of oil prices on the world markets, which has caused a plunge in profits for the Czech monopoly natural gas importer, Transgas.

Skoda hopes for weaker crown

The country's biggest carmaker, Skoda Auto, has complained about the current exchange rate of 34 Czech crowns to the euro. Skoda said the strong crown was threatening the Czech car industry, which exports 71 percent of its production and accounts for more than 17 percent of Czech exports. Skoda said they would welcome the Czech crown being weakened by ten percent.

Czechs not interested in working abroad

According to a recent survey conducted by the Centre for Public Opinion Research, a large majority of Czechs - 84 percent - are not interested in searching for a job in other countries after the Czech Republic joins the EU. Only 15 percent of respondents said they would consider seeking employment in the West. The statistics were released ahead of Friday's EU Summit in Gothenburg, where EU enlargement will be top of the agenda.

Unemployment keeps falling

The Czech unemployment rate continued its downfall in May, dropping to 8.1 percent from 8.3 percent in April and returning to the level of May 1999. The lowest unemployment rate remains in Prague and Central Bohemia - around 3 percent, while the highest number of people out of work was in the North-Western region of Most - almost 21 percent. Five other regions report unemployment over than 15 percent.

Oskar grows fast, but remains smallest mobile operator

The Czech Republic's third mobile phone operator, Oskar, has said it now has half a million customers. Oskar reached the half-million mark within 17 months, making the company the fastest growing mobile operator on the Czech market. It took competitors Eurotel 27 months and RadioMobil 31 months to notch up half a million. However, while Oskar has been growing at a pace of around 40,000 new clients a month, its competitors have been attracting more than 100,000 new customers every month.

Property declarations on the agenda again

The Czech cabinet has approved draft legislation on the declaration of private assets which would force all those whose property exceeds 10 million Czech crowns (around 250,000 US dollars) to declare their assets to the revenue office. The Social Democrat government hopes to trace tax defaulters by comparing the increase in the value of property with income declared to the revenue office. The first declaration is to be made in 2002, then in 2004 and from then on every third year. Former finance minister Ivan Pilip, now an MP for the opposition Freedom Union party, says the law as an attack against people who are wealthier than the rest of the nation, and accuses the government of populism.

Given the fact that a similar bill was turned down by Parliament two years ago and the right-wing opposition parties are united in their disapproval, the minority government's proposal is unlikely to succeed.

June 7 - Tax Freedom Day

June 7 was so-called 'Tax Freedom Day' in the Czech Republic. This means that, theoretically at least, from January 1 to June 7 people worked only to pay their taxes, and from now until the end of the year they will be working purely for themselves. In many western countries that have a lower overall tax burden, this day comes much earlier in the year.-

However, both the former Social Democrat Finance Minister, Pavel Mertlik, and his successor, Jiri Rusnok, have spoken about the necessity of raising taxes further in the future.

Miroslav Sevcik is the director of the right-wing think tank, the Liberal Institute. Mr Sevcik is convinced that the overall tax burden in the Czech Republic is already quite high, and he calls for a reduction in taxes to 30 percent from the current level of 43 percent. That way Czechs can celebrate Tax Freedom Day on April 30, on the eve of May Day.

"I personally think that the tax burden is very high and that a further tax hike is unacceptable. Considering the fact that 43 percent of all profits generated in the economy every year flows into a public budget which cannot be controlled efficiently, I think the burden is more than too high. Everyone always uses his or her own money more effectively than someone else's and civil servants are no exception - they aren't any better at spending the money they collect. We say: let people have more money and foster prosperity, and people will spend more with a positive influence on the economy."

Of course it's normal to pay a high price for quality services. But according to Mr Sevcik, Czechs are not getting an appropriate level of service from the state for their money.

"I can give several examples where citizens cannot be satisfied with what they pay for. It's an illusion to think that for example education or health care are free. Everyone pays for that in the form of taxes but people do not realise that the money is redistributed by way of the state budget."

"Another issue is the legislative function of the state. Take the recent changes in the commercial code and the labour code. The commercial code has been changed recently and another amendment is in the pipeline. Its implementation will cost self-employed businessmen half a billion crowns in Prague alone. This immense wasting of money is caused by an overdeveloped state bureaucracy."

A tax hike has been presented by the Social Democrat government as inevitable. What would be the impact of a further tax hike?

"An increase in taxes in economies with high taxes results in tax evasion and, of course, de-motivates economic subjects, both households and firms, from higher performance, so that the desired economic growth does not take place. On the contrary, a decrease of taxes in market economies usually leads to greater prosperity."

Some West European countries are known for their extensive social welfare systems and high taxes. The Czech government has mentioned the Swedish model as an example to follow. So, how do we compare to other European countries as far as the level of taxation is concerned?

"It's difficult to compare the systems because almost all systems we know are being reformed. For example, Germany launched an fundamental tax and pension reform, reforms are underway in the Scandinavian countries as well, because they realised that these overgenerous social welfare systems are not sustainable given demographic development. And the Czech Republic will have to do the same. Unfortunately, politicians have different opinions, and in a populist effort to attract voters, they often resort to lies. I'm convinced that in around 15 years, when the pension system could collapse unless reform takes place, few people will remember that the minister of Labour and Social Affairs was called Mr Spidla, but they will be angry with the contemporary government. However, it's a long-term task to reform the pension system and if we don't start soon, we're sure to get in trouble."

What level of taxation do you see as appropriate for the Czech economy?

"I'm not so naive that I think it's possible to reduce taxes to the level of the United States in one go. But we should work towards this goal in the next 10 to 15 years and come down from the current 43 percent to 30 percent. I think this level would produce fast and dynamic economic development."

"If we look at corporate tax in the candidate countries, the Czech Republic has one of the highest levels. All the 11 candidate countries but Malta have lower tax rates than the Czech Republic. This is the data for the year 2001. Our ministry of finance, however, quotes data from 1998, when our tax rates were comparatively lower. But we can see that there is a trend towards reduction of taxes even in EU candidate countries."

14-06-2001