Trade Unions publish analysis of Czech shadow economy

06-11-2003

While the first stage of the government economic reforms is aimed at reducing the ballooning public finance deficit, state institutions as well as economic analysts agree that the second stage should focus on fighting the so-called shadow, or grey, economy.

The Czech Confederation of Trade Unions has published its own analysis of the shadow economy in the Czech Republic this week. According to the union's chief economist, Martin Fassmann, the scale of the shadow economy is hard to establish precisely, but estimates speak of tens of billions of crowns a year, which implies enormous tax evasions. In 2000, the Czech Statistics Office estimated the size of the shadow economy at 100 billion crowns, which, according to Mr. Fassmann, would mean that the state was stripped of some 60 billion crowns in unpaid taxes and social insurance - about a tenth of the total budget revenues.

The head of the trade unions, senator Milan Stech, believes that fighting the shadow economy should have been part of the first package of the government's reforms. He told Radio Prague about the union's involvement in the preparations of Phase II of the reforms.

"We have received several draft laws to comment on, including a law on property declarations, and a law on cash registers. We are expecting a draft law on alcohol labelling and some amendments to the Commercial Code aimed at making the business environment more transparent. We will closely observe the passage of the first two laws through parliament, because there have been voices calling for the property declarations to apply only to property acquired after the adoption of the law. We think that it should be possible to check changes in valuable property of some people in accordance with applicable laws. Likewise, we think that it is necessary to introduce effective supervision over the use of the cash registers so that it does not become a formality."

The trade unions call for fighting dubious employment practices when some firms only hire people who have their own business licence, avoiding the responsibilities which are part of the standard employment relationship. Another problem that the unions feel strongly about is illegal employment, which is closely connected with illegal migration.

Mr. Stech also explained why the trade unions felt the need to get involved in fighting the shadow economy:

"It is because in real life, entrepreneurs who are part of the regular economy and regular employees who pay all the taxes and social and health insurance from their income, find themselves in a serious competitive disadvantage on the labour market, because people who have some incomes from outside the official economy can work for lower, dumping wages, so to speak. Also, people involved in the shadow economy have an unfairly stronger purchasing power and pull prices up, which damages those who do not have such incomes. If all people worked in the shadow sphere, the national economy would collapse because there would be no money to finance public goods and services, including the pension and health systems."

According to the unions' economist, Mr. Fassmann, there is a wide range of methods to estimate the scale of the shadow economy. The Czech Statistics Office uses the accounts method, which compares the differences between revenues and expenditures. Likewise, it is possible to monitor differences between household incomes and spending. People who are "missing" from the labour market are suspicious, as is a growing number of banknotes of high denominations in circulation. Furthermore, when energy consumption exceeds the economic performance of the country, it also indicates the presence of shadow economy.

The Trade Unions have sent copies of their analysis of the shadow to all Members of Parliament and the governor of the Czech National Bank.

06-11-2003