At a national meeting of representatives, the Czech-Moravian Confederation of Trade Unions (ČMKOS) expressed its fundamental disagreement with the forthcoming government reform of public finances, and called for a demonstration on 23 June 2007 to protest against the proposals. The Association of Independent Unions supported ČMKOS in this action. However, the employers have welcomed the reforms, even stating that they do not go far enough.
Plans for public finance reform
Many Czech and European economists believe that the Czech Republic must carry out a reform of its public finances. Nevertheless, the recent government proposals have created a wave of disagreement across the country, and trade unions have joined in the protests. The Czech-Moravian Confederation of Trade Unions (Českomoravská konfederace odborových svazů, ČMKOS) – the largest union grouping in the Czech Republic – called for a public demonstration against the proposed government reforms.
The proposed reform, entitled ‘Reform steps to be undertaken from 2007 to 2010 to achieve the required state budget deficits’, aims to halt the rise in the deficit in public finances as well as government debt. The measures to be used to achieve this objective are directed at both income and expenses.
On the income side, the reform will lower the tax burden, simplify the tax system and limit the administrative burden linked to tax collection. According to the government, greater emphasis on indirect taxes, with an increase in the lower value added tax (VAT) rate from 5% to 9%, should make it easier to do business and should support further economic growth. This aim would be further facilitated by the consolidation of income tax rates at 15% and the introduction of negative taxes – in other words, state allowances.
On the expenses side, the government wants to make savings on mandatory expenditure through a reform of the pensions system, tighter controls on the cost of healthcare, a reduction in welfare payments and improved targeting of these payments.
Trade union concerns
The trade unions have criticised all of the proposed initiatives. The Macroeconomic Analysis and Forecasting Unit and the Socioeconomic Unit of ČMKOS have prepared their own analyses of the impact of the reform of public finances. The confederation criticises the government for not making information on the reform more widely available and for deliberately withholding some of the potential impacts of the reform. ČMKOS also underlines that, according to its analysis, the main purpose of the reform is not to limit the deficits but primarily to lower tax rates. As a result of these lower rates, the tax intake will be reduced, which – according to the unions – will further limit public spending in areas such as welfare payments and pensions.
Although the tax rate will be standardised, its base will not be reconstructed from gross salary, but from the so-called ‘super-gross salary’ – that is, an employee’s gross salary plus the employer’s social and health insurance contributions. According to the trade unions, this will lead to an increase in the tax base, and the tax burden on incomes in the lower tax bands – which currently stand at 12% to 19% – will increase, thereby affecting mainly lower-income groups of the population. These groups are also affected by the planned reduction in welfare payments such as children’s and parental allowances and social payments, and by the plans to target such payments more selectively.
The unions also criticise other measures within the tax reform, for example the freeze on the salaries of civil servants and a reduction in their numbers, as well as the ending of the tax-exempt status of all social benefits which have been paid up to now from companies’ social funds. In their view, these benefits are a part of business culture and form part of the process of collective bargaining.
In the area of health reform, the trade unions disapprove of the proposals for individual financial contributions for each visit to a doctor’s surgery, each item on a prescription and each day in hospital. According to the unions, these payments will affect pensioners in particular.
Overall, the trade unions believe that the reform will favour high-income groups within the population.
Protest action planned
At a national meeting of representatives on 19 May 2007, ČMKOS decided to call a demonstration on 23 June to protest against the forthcoming reform of the public finances; this action was supported by the second largest trade union grouping, the Association of Independent Unions (Asociace samostatných odborů, ASO). In its announcement dated 4 June 2007, ASO also called on ČMKOS to join preparations for a general strike, ‘should the demonstration fail to achieve the cancellation of reforms which will have a negative impact on the majority of Czech citizens’.
Views of employers
Meanwhile, employers support the planned reform, albeit with some reservations – in fact, they demand changes of a more radical nature. According to the Vice-President of the Confederation of Industry of the Czech Republic (Svaz průmyslu a dopravy ČR, SP ČR), Martin Jahn, the reform should introduce an even greater simplification of the tax system, reduce overall labour costs and lower the employer contributions to medical insurance. Mr Jahn also criticises the fact that the reform under preparation, on the one hand, will reduce taxes but, on the other hand, will significantly extend the tax base, as some deductible items – such as research and development – may apparently be restricted. The Chair of the Confederation of Employers’ and Entrepreneurs’ Associations (Konfederace zamestnavatelských a podnikatelských svazu, KZPS), Jan Weisner, disagrees in particular with reduced subsidies for the employment of people with disabilities.
Soňa Veverková, Research Institute for Labour and Social Affairs