On May 11, 2023, the government of Petr Fiala presented a plan to restore the public finances of the Czech Republic.
What does the new austerity package proposed by the government consist of?
The plan includes a consolidation package worth nearly 150 billion Czech crowns and a proposal for pension reform that will ensure the sustainability of the pension system in the coming decades. The plan is called “Czechia in Shape” (Česko v formě), and the package includes, among other measures, the unification of VAT rates from three to two, which will now be 12% and 21%. The lower rate will apply to food, medical devices, water, and sewage. The cabinet also proposes a reduction in non-investment subsidies, which is expected to save 46 billion crowns next year. Another 20 billion will come from streamlining the state. On the other hand, alcohol and tobacco will become more expensive, while books will be tax-free. Taxes on tobacco, alcohol, and gambling will generate an additional 10.9 billion crowns over two years, mostly in the next year. Cigarette, smoking tobacco, and cigar taxes will increase by ten percent next year and five percent in each of the following three years. The tax on heated tobacco will increase by 15 percent annually, and nicotine pouches and e-cigarette refills will be taxed. The lowest gambling tax rate will increase to 30 percent from the current 23 percent. Alcohol tax will increase by ten percent next year and five percent in the following three years. Furthermore, the government aims to save over 20 billion crowns on operational and salary expenses of the state and nearly 46 billion crowns on non-investment subsidies. The presentation of the series of measures began on Thursday morning, with all ministers present at the briefing. The name Czechia, according to Prime Minister Petr Fiala, describes the main common goal of this government, which is to bring the republic back to a situation where the trend of increasing state debt, and therefore the debt of future generations, will be radically changed.
Additional proposals
The proposed pension reform, presented by the Deputy Prime Minister and Minister of Labor and Social Affairs, would include an automatic adjustment of the retirement age based on life expectancy according to data from the Czech Statistical Office (CZSO). This change could be achieved through stricter rules for early retirement, slowing down the growth rate of new pensions, or adjusting already paid pensions. The government also wants to limit the accumulation of employment contracts and motivate citizens to use part-time work instead. Another goal of the reform is to ensure higher pensions for self-employed workers. Additionally, according to the President of the Chamber of Deputies of the Parliament of the Czech Republic, Markéta Pekarová Adamová, the restoration of public finances is a fundamental obligation toward future generations.
What are the possible consequences?
According to Finance Minister Zbyňek Stanjury, savings should account for 66% of the total package in 2024, and 53% the following year, with the rest being income. The volume of state subsidies will decrease by 54.4 billion crowns in the next two years. Of this, subsidies will be reduced by 45.6 billion crowns next year, said Stanjura. Starting in 2025, the corporate income tax will increase to 21% from the current 19%, which will generate 22 billion crowns for the state.
Source: https://www.vlada.cz/; https://echo24.cz/
Graphic Source: https://storyset.com/
Source of images: https://pixabay.com/
