Saturday, 16 December 2017

LN: Social insurance is in fact additional income tax

ČTK |
9 January 2017

Prague, Jan 7 (CTK) - Some Czech politicians are fighting for higher salaries and defending high social insurance payments at the same time, although these two things seem incompatible, Jakub Kambersky wrote in daily Lidove noviny published on Saturday.

Finance Minister Andrej Babis (ANO) suggested on Friday that the social insurance payments should be lowered. However, Babis is only repeating what others have proposed in a better way and his proposals are very vague, same as the programme of his ANO movement, Kambersky writes.

In the Czech Republic, the social insurance is no insurance at all, but a tax. If it were an insurance, half of the people would have never signed such an insurance contract and the other half would have never received such an offer, Kambersky says.

Many Czech people will be getting a lower monthly pension than is the monthly social insurance that they have been paying for decades and they will receive the pension for only a few years, Kambersky writes.

On the other hand, hundred of thousands of people will receive pensions at the level of 90 percent of their net wages. In case of women, they may receive this pension far longer than they were employed, he says.

The Czech income tax is relative low. The tax rate is 15 percent for most people and 22 percent for those with a monthly income over 108,000 crowns. But there is the additional income tax - the insurance, which swallows up 28 percent of the gross wage. This makes work expensive in the Czech Republic, Kambersky writes.

Yet the Czech Republic is no extreme among the countries of the Organisation for Economic Cooperation and Development (OECD) with total tax rate of 42.8 percent, Kambersky writes.

He says it might seem that the high insurance is no serious problem since companies keep opening new branches in the Czech Republic and the unemployment rate is low.

But there are two problems related to the high social insurance, he adds.

First, the Czech Republic cannot have a corporate tax as high as in Germany or France because the country needs to have at least some comparative advantage in the international competition. Similarly, work in the country cannot be subject to so high taxation as in Sweden or Belgium, Kambersky writes.

Second, firms that do business in the Czech Republic do not care how much money they send to the bank accounts of their employees. The firms are only interested in the total costs. The high taxation imposed on labour is one of the reasons why Czech salaries are low, Kambersky writes.

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