Times are changing. Many entrepreneurs are already poorer than their employees – at least judging by average incomes, according to a Labour and Social Affairs Ministry analysis assessing the recession’s impacts by household type.
The position of pensioners improved in the first quarter of this year. But things may change next year because Finance Minister Eduard Janota is considering freezing pensions for 2010 owing to a rising budget deficit.
By contrast, those earning their livings on their own have been the hardest hit by the crisis. The families of entrepreneurs (and in particular the self-employed) saw their incomes drop by 2.4% to about CZK 30,000 a month. When adjusted for inflation, their standard of living decreased by 4.4%.
While in the first quarter of last year, entrepreneurs’ monthly incomes were CZK 1,000 higher than those of employees, business owners are now making CZK 1,600 less than employees each month. But the situation can change again. “A crisis first shows on financial markets, then in the business sphere and in the end on unemployment,” ČSOB economist Tomáš Sedláček said.
Businesses as well as entrepreneurs are slowly starting to bounce back, according to the latest statistics. The whole economy, industrial production and exports are slowly growing compared with the first months of the year. But what also helps companies survive is cutting costs and jobs considerably.
The state paid out CZK 3.1 billion in unemployment benefits in the first quarter of this year, 65% more than last year. Today, the number of unemployed is higher by 60,000, which means yet a bigger burden for the state budget.
Fighting giant deficit
On Sunday Janota introduced proposals to avoid budget deficits exceeding CZK 200 billion in the years to come.
The steps he is proposing include a VAT increase, a raised excise duty on petrol and a higher property transfer tax. Janota also wants to reduce markedly the expenditures of individual ministries and, as has been mentioned already, to freeze pensions. Because of low inflation, retirement payments do not have to increase, according to the law.
However, the big parties do not agree with such measures. “We regard Janota’s plan to raise taxes as premature and risky,” ODS economic expert Martin Kocourek said. Higher taxes could reinforce negative expectations in the economy, which, along with the decline in purchasing power, would inhibit economic growth, he added.
“A possible increase in inflation could be a risk as well because it would require a further growth in mandatory expenditures,” Kocourek said.
The Social Democrats also criticised the proposal and have even come up with their own solution. “We should start with income taxes, more specifically, to raise the corporate income tax. And to return to progressive taxation of individuals’ incomes,” ČSSD economic expert Jiří Havel said. He added that only companies with a monopoly market position are making profits now, which concerns the energy group ČEZ and some financial institutions. Havel said, however, that he welcomes the fact that the minister has finally admitted that tax hikes would be necessary in the current situation, but added that he would leave VAT as the last one.
