Unfortunately, according to the Council, the budgetary policy conceived in this way will not ensure the use of public funds that the government borrows on the capital markets, with the maximum effect on supporting demand. “Rather, it fulfills the characteristics of targeted measures that are unrelated to the covidu-19 pandemic and the fight against its economic impact, which was the main argument for loosening fiscal rules,” the council said.
At the same time, it reiterated that the proposed abolition of the super-gross wage and the introduction of tax rates of 15 and 23 percent without a significant increase in other revenues or reductions in expenditures threaten the medium and long-term sustainability of public finances. The rate of 23 percent should remain for incomes above approximately 140 thousand crowns per month. Effective taxation for employees now stands at 20.1 percent.
On Wednesday, the Ministry of Finance rejected the statement of the National Budget Council. At the same time, the office defends the council’s criticized one-time contribution to pensioners, saying that seniors should cover higher costs, which would be reflected in legal valorisation only from 2022. The abolition of super-gross wages is then increase consumption. This follows from the reaction that the resort sent to the ČTK agency.
The Council also considers it problematic that the proposed measures are discussed separately and are not assessed in the context of the medium-term strategy for the consolidation of public budgets, which the government is to submit to the Chamber of Deputies by 30 September.
The Council further pointed out that, although the increase in the budget deficit was justified mainly by the need to invest in the crisis, the increase in capital expenditure amounted to only thirty billion crowns. “However, the real impact on investment activity is likely to be even lower, as part of the funds is intended for the State Fund for Transport Infrastructure as compensation for the loss of its own revenues due to the economic downturn. Therefore, it is not about resources for new investments, but to cover already planned actions, “said the council.
In the case of a one-off contribution to pensioners, the Council pointed out that in the current economic situation, only expenditures that stimulate demand as much as possible or partially mitigate the negative effects of the crisis on the incomes of affected households should be made.
“However, the income of retired households does not meet this criterion, as it was not affected by the crisis,” the council said. At the same time, however, she added that the chosen solution is more suitable in terms of its impact on the sustainability of public finances than the originally considered above-standard valorisation of pensions.
According to the ministry, it is true that from January there will be a legal valorisation of pensions, which will compensate for the increase in costs until June 2020. “However, it is clear from the latest data for July that the living costs of pensioners have further accelerated above the value by which they are valorised. The extraordinary contribution is intended to cover higher costs for seniors, which would be reflected in the legal valorisation only from 1 January 2022, “said the ministry.
Regarding the abolition of the super-gross wage and the introduction of two tax rates, the Council further stated that it considered them inappropriate in the current economic situation. According to the council, support from direct government expenditures is more appropriate to support demand. In addition, there is a real possibility that households will save a significant part of new income due to the expected unfavorable development of the economy, thus jeopardizing the expected additional VAT and excise revenue that the government expects.
The ministry mentioned that the budget amendment responded to the worsening decline in state budget revenues due to the negative economic effects of the pandemic. “At the same time, it was necessary to spend more on fighting the disease and supporting the economy. We recall that other Member States of the European Union are responding similarly to the current crisis. ”
The government should also adjust discounts and deductions with the change in taxes, the council says
Along with the change in taxes, according to the council, the government should also adjust tax rebates and deductions, otherwise progressive taxation will be reduced, with net income increasing more for households with higher incomes than for low-income households.
“The problem with a significant reduction in personal income tax is also that they are inappropriately trying to reduce the high taxation of labor. Its decline is certainly desirable in the Czech Republic, but the main problem with labor taxation here is statutory insurance premiums, not income tax. It is already relatively low in international comparison, on the contrary, the importance of insurance premiums is above average, “said the council.
According to the council, the changes in taxes will also prepare the budgets of municipalities and regions by approximately 30 billion crowns, which would probably lead to a reduction in investment. “It must be remembered that public investment in local budgets accounts for almost half of all public investment,” the council said. The council estimates the total impact of the change on public budgets at 92 billion crowns.
The task of the National Budget Council, which exists on the basis of the Act on Budgetary Responsibility, is to independently evaluate budgetary policy, compliance with budgetary rules or issue a report on the long-term sustainability of public finances. Eva Zamrazilová, a former member of the Bank Board of the Czech National Bank, heads the Board.
Events: One-time pension allowance
About Zamrazilová, Prime Minister Andrej Babiš (YES) stated on Wednesday for the Czech Television Events that he was historically connected with the ODS and represented the opposition. “It is necessary to see where she has been everywhere and who nominated her there,” he added. He said the contribution is because consumer prices have risen more for retirees than for households.
Babiš stated that “ODS has always hated pensioners, they gave them zero in 2010 and 45 crowns in 2014.” He added, “for us pensioners are a priority, we want them to have a better life and pensions are the ninth worst in the Union. And next year, according to the valorization, they will receive 848 crowns. “
The state budget deficit rose to 230.3 billion crowns at the end of August. In July and August, the deficit widened significantly more slowly than in the period from March to June, the council said. Economists expect that for the whole year the budget deficit could be between 400 and 450 billion crowns.
The government deficit was adjusted three times this year due to the effects of the spread of coronavirus three times. From the original 40 billion crowns, the deficit was first increased to 200 billion crowns, then to 300 billion, and in July the Chamber of Deputies approved an increase to 500 billion.