The government is discussing a change in the valuation of pensions
According to the Finance Minister’s words Zbyněk Stanjura, the government may revise some tax deductions in order to consolidate public finances by 70 billion Czech crowns, although most of the government interventions will be on the expenditure side. More precisely, it is intended to reduce the structural deficit in public finances by 70 billion by next year, with a maneuver that will impact one-third on the revenue side and two-thirds on the expenditure side.
Subject is the reduction in the valuation of pensions. There was a discussion on this between Finance Minister Zbyněk Stanjura and his predecessor Alena Schillerová, who emphasized that the issue is very sensitive and whose aspects need to be weighed and measured before drawing conclusions and arriving at a solution. Also speaking during the discussion was Czech National Bank Deputy Governor Eva Zamrazilová, who argued that the problem lies much deeper, namely in the formula used to value pensions, which should therefore be changed. At the end of the discussion Stanjura said that the proposal is to moderate the pension valuation rate but not to cancel it, thus arriving at a record-breaking ratio of average pension to salary: the highest value ever recorded. In contrast to Lieutenant Governor Schillerová who, during her time as state treasurer, had this ratio among the lowest ever. In Stanjura’s opinion, the budget is quite robust and there is no need to increase it, although the final budget will cope with the enhancement of pensions. This amendment is still in government awaiting approval. But it is important that this approval happens before March 21st, which is shortly after the inauguration of the new president Petr Pavel.
In the chart below you can see the impact of the extraordinary indexation of pensions, in billions of kronor. The blue block shows the rules in effect at this time, while the pink block illustrates the situation with the changes that will occur if the new pension indexation rules are implemented. The data are updated to February 2023. Indeed, as we can see, applying the changes will reduce spending significantly, by about 50 percent in both estimates for the current and subsequent years. Debt in 2023 would be reduced by 19.4 billion kronor and 33 billion kronor less would be paid in 2024.
In addition to acting on pensions, Stanjura announced a willingness to change gambling taxation. Every year state revenue from gambling is around 9 billion kroner, but by changing the taxation this number could increase. This change would be applied to the tax base, increasing it, and/or the tax rate. Taxing still wine had then been discussed in government, but Stanjura says the administrative costs of introducing it do not make the maneuver worthwhile. Other deductions at risk are those involving dependent spouses and tax incentives for building-saving contracts; those for minor dependents should remain unchanged. Overall, 10/11 tax deductions are discussed.
Sources: https://www.camic.cz/ ; https://ct24.ceskatelevize.cz/
Source of chart: Pension Insurance Law (February 2023)
Sources of images: https://pixabay.com/ ; https://storyset.com/
