LN: VAT rise at odds with Czech heralded budget responsibility

Prague, Aug 16 (CTK) - The Czech government's policy of tax increases is at odds with the proclaimed "budget responsibility," harms Czech economy, and it should be dropped and replaced by genuine, effective austerity steps, economist Pavel Kohout writes in daily Lidove noviny (LN) Thursday.

He reacts to the ongoing dispute on whether this year's decline in the VAT revenues is to blame on the lower VAT's increase from 10 to 14 percent or on the economic crisis alone, and whether both VAT rates should be further raised as of next year in accordance with Finance Minister Miroslav Kalousek's (TOP 09) plan backed by Prime Minister Petr Necas (Civic Democrats, ODS).

In reaction to Vaclav Klaus's criticism of the VAT increase plan, Necas said Klaus can afford such criticism as he bears no responsibility for the state budget. The question is whether tax increases really mean budget responsibility on the part of the cabinet, Kohout writes.

It is well known that irrespective of VAT increases, people still buy about the same volume of goods with the lower VAT, which are indispensable (food, medicines), while they are left with less money to buy goods with the higher VAT, which they can often do without, Kohout writes.

Denying the VAT burden's impact on retail sales amounts to denying the gravitation law. Every vendor knows that more expensive goods sell worse, Kohout adds, challenging deputy finance minister Ladislav Mincic's assertion that the declining VAT revenues have nothing to do with this year's VAT increase.

Necas defends his cabinet saying its aim is to reduce the public finance deficit. Unfortunately, Czech governments, not only the Necas one, always do just the opposite to what would be appropriate and really effective, Kohout writes.

In 2006, when the Czech economic growth reached the now unimaginable seven percent in real term, the then Jiri Paroubek's Social Democrat government, with its populist budget policy allowed the budget to end in a 2.9 percent gap, Kohout says.

At the time of growth, the government unfortunately continued to heat the "overheated boiler," while now, in a period of recession, the Necas government inappropriately discharges the last remnants of vapour the economy has been left with, Kohout writes.

Czech governments' behaviour is in fact pro-cyclic, increasing the divergence from equilibrium. From people's point of view there is no difference whether a left- or a right-wing government is in power, because economic clumsiness spreads across the whole political spectrum, Kohout writes.

If Kalousek and Necas wanted to politically survive the next elections, they would have to start saving public money appropriately instead of imposing higher taxes and launching "jihad" against self-employed people, Kohout writes, alluding to the government's plan to increase the revenues from the latter group's income tax.

The government should thoroughly check all public expenditures, above all the spending on transport infrastructure, defence and information technologies. Huge amounts of money flow to these branches, they are difficult to control and have a big corruption potential. The same applies to the health sector, Kohout writes.

The government should also change the welfare system. It is well known, for example, how poorly functioning and cost-intensive the system of subsidies in support of "unadaptable people's" housing is, Kohout writes in LN.

Finally, the cabinet should consider its approach to the word "responsibility." The way voters understand this word profoundly differs from the government's, Kohout adds in conclusion.

Hospodarske noviny's (HN) commentator Julie Hrstkova says the debate on whether a further VAT increase would benefit the economy is irrelevant because this year's VAT increase has already shown that it cannot have any positive effect.

Judging by Necas's recent statement, the government views people as egotists who tend to save money in banks instead of spending it in favour of the state tax revenues and the government's budget development plan, Hrstkova writes.

Necas blamed Czech households' tendency not to spend money on the crisis in the euro zone.

However, rather than the Greek demonstrations and the Spanish banks' troubles, the Czechs react to unfavourable developments on the domestic scene, such as rising unemployment, the government's pressure on self-employed people, the rising VAT, health and social insurance contributions as well as prices of medicines and patients' fees, and also the increasing prices of electric energy and gas, Hrstkova writes.

The rent regulation in municipal flats that ends in Prague and regional centres as from next year also contributes to people's reluctance to spend money excessively, she says.

If nothing other changes, a VAT rise, if pushed through by Kalousek, definitively will not help Czech economy next year, Hrstkova says in HN.