On Monday the Czech government approved a set of 16 measures to ease the impact of the global financial crisis. All measures proposed in the rescue package, drafted by independent experts from the National Economic Council, the NERV, are aimed at easing the burden for entrepreneurs, so that they can employ as many people as possible even in times of crisis.
The only unexpected change that the government added to the crisis plan at the last moment on Monday is a proposal for the self-employed and for companies with fewer than five employees to be able to not pay income tax advance payments this year.
When presenting the working version of the anti-crisis plan, Prime Minister Mirek Topolánek told a news conference Monday that the measure would concern roughly a quarter of a million entities and bring them aid of as much as CZK 22 billion. The proposal comes instead of the refund of 2007 taxes for businesses that the cabinet considered earlier.
Faster VAT refunds would be another tool to boost the payment discipline of businesses. In the end, both of these measures should be neutral in fiscal terms because entrepreneurs will have to pay the taxes anyway in early 2010, the news site Lidovky.cz wrote on Monday.
But Industry and Trade Minister Martin Říman says that entrepreneurs would use the free financial resources for investment that, in line with the crisis plan, would be subject to much faster write-offs, Lidovky.cz said.
By contrast, the government has abandoned some of the plans it considered earlier. These include a lower VAT on services in restaurants, a scrap fee – in other words a subsidy for a new car that people would get if they had their old vehicle scrapped – and the legalisation of what is called the švarcsystém, a wide-spread practice of employing self-employed people in order to avoid social insurance payments for regular employees.
“Discounts on social insurance will work better,” Hospodářské noviny quoted Labour and Social Affairs Minister Petr Nečas as commenting on why not to make the švarcsystém legal. The government pins its hopes on the social insurance discount. The national anti-crisis plan even says that the move would save 50,000 to 70,000 jobs, HN wrote.
Businesses would be able to write off cars in two years instead of the standing five years, and to write off VAT on every new passenger car. New investment in house insulation would benefit construction companies, while massive CZK 2 billion support to regional transport would give a boost to transport providers, HN said.
Investment in infrastructure should reach a record-high level. The government wants to earmark more than CZK 90 billion for this purpose, including funds left over from last year. That is more than double the sum spent in previous years, Lidovky.cz said.
An obstacle on the way to the eurozone
The government’s crisis plan will cost CZK 40.5 billion, of which a major part will come from the state budget. If the Czech economy contracts by the predicted 2% this year, the country’s public finance deficit will most probably exceed 3% of the gross domestic product. The Czech Republic will therefore fail to meet one of the euro adoption criteria ordering eurozone countries to keep their public finance gap below 3% of GDP. “We will definitely go above 3% of the GDP, which is a big complication for a country seeking euro introduction,” Topolánek admitted when speaking on Slovak Television on Sunday.
The hardest task still to come
Finding sufficient support in the Chamber of Deputies for measures requiring changes to legislation will not be easy. The opposition only agrees to some of the measures, and ČSSD Chairman Jiří Paroubek proposed to the government to present the crisis plan to the lower house in parts, so that MPs can vote on its individual components. The ČSSD would be in favour of faster write-offs and higher guarantees for business loans, but would definitely not help the cabinet with its flagship, discounts on social insurance.
“As soon as we decrease social payments, we will have less money on the pension account. We will consume current and future pensions and there will be less money to deal with unemployment. And we do not want that,” HN quoted Paroubek as saying.
But Topolánek told journalists on Monday that MPs should take a vote on the block of crisis measures as a whole. “I do not think that we should take something out of it. The opposition had criticised the package before they knew what it contains. I consider this ridiculous,” Topolánek said.
In any case, the government will be able to introduce most of the measures on its own. This concerns, for example, support for exporters, investment measures and guarantees for loans, HN wrote on Tuesday. “We are yet to decide where to use a public notice and where just a decree. The government could discuss it within a fortnight,” Nečas told the daily. Moreover, some of the measures, such as lower taxes for entrepreneurs, came into force as early as January.
Sixteen measures to fight the crisis:
1. Discount on social insurance payments
2. Faster write-offs – should motivate entrepreneurs to invest and buy assets even in times of crisis
3. VAT deduction on cars
4. Cuts in social insurance
5. Lower corporate tax
6. 20% cut in fees on railways
7. Guarantees for bank loans provided to companies – CZK 2 billion for the state-run guarantee and development bank ČMZRB that should provide loans to small and mid-sized businesses under advantageous terms
8. Refund of up to 80% of salary
9. Increasing energy efficiency of buildings – CZK 6 billion for insulation in family houses and CZK 600 million for prefab houses
10. Support to exports
11. Support for businesses in agriculture
12. Investment in research and development (CZK 32.4 billion)
13. Investment in transport infrastructure – the Transport Fund will get CZK 92.3 billion
14. Programme for rural development
15. Exemption of firms from the need to pay income tax advance payments in 2009
16. Amendment of insolvency law and faster VAT refunds
Source: Hospodářské noviny
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