Taxes will decrease as of January for all people who have some income and pay social insurance. In the last moment, the government managed to reduce social insurance payments by 1.5% in the lower house Wednesday.
As a result, state budget revenues will fall by CZK 18 billion. There is a threat of a high budget deficit already now, but many countries in the world resort to tax cuts due to the crisis and ministers believe such a move will boost the economy.
“It is good news for low-income groups because their mandatory payments will be lower. Payments will also decrease to those who now do not pay any income tax because their tax deductions are now lower than the tax burden,” Finance Minister Miroslav Kalousek, who pushed the tax cut through, said after the vote.
However, apart from cutting social insurance payments, MPs raised one type of tax for some people, for they cancelled the zero property tax on new buildings. At present, houses younger than 15 years are not subject to property tax, but next time everyone will have to pay.
The government in the end had again support from Evžen Snítilý, former deputy for the opposition Social Democrats (ČSSD). Snítilý criticised Kalousek’s bill still a week ago, but changed his stance on Tuesday and left the meeting hall before the vote to lower the number of deputies necessary to approve the bill. Moreover, the Social Democrats and the Communists failed to keep an eye on the number of their members present in the hall, so the government coalition had one deputy more than the opposition during the vote.
The upper house should approve the social insurance cut next week. If President Václav Klaus signs the bill in time, the measure could take effect as of January 2009.
People with a monthly income of CZK 20,000 will therefore save CZK 300 a month next year, and employees earning CZK 40,000 will get CZK 600 more in net income each month. A manager with a CZK 90,000 wage will pay CZK 1,350 less in social insurance. At present, there is a ceiling on social insurance at four times the average wage, which is now slightly above CZK 23,000, so people with incomes of CZK 200,000 will save almost the same amount of money as those with a CZK 90,000 wage.
By reducing the social insurance by 1.5%, the government of Prime Minister Mirek Topolánek managed to remedy the mistake it made when approving the public finance reform in August last year. The cabinet at that time lowered the tax rate from 15% to 12.5%, but the reform also slashed tax deductions to the extent that there was a threat that all people with a gross monthly wage bellow CZK 20,500 would pay higher taxes as of next year.
The tax hike threat also concerned all families with gross incomes bellow CZK 40,000 where one of the partners applies a tax deduction on the other. This is the case of families with the woman on maternity leave, for instance.
The Social Democrats and the Communists voted against Kalousek’s proposal despite the fact that a vast majority of their voters would have to pay higher taxes if the bill was not approved.
“The government first proposed a tax hike, than a tax cut, and pretends that it is fighting with something negative for citizens. Mirek Topolánek and Miroslav Kalousek are like Pat and Mat of Czech politics. They are changing tax laws, do not understand it at all, and in the end want to blame it on the Social Democrats. We are not going to support anything looking like a single tax rate from a supergross wage,” ČSSD deputy chairman Bohuslav Sobotka said.
The government does not plan any other income tax reductions for the time being. But Kalousek would like to lower the tax burden for businesses.
“I am determined to submit a decrease in tax write-offs for VAT payers on all cars. And maybe thinking about some services with high value added and possibly shifting them to a lower rate will be relevant as well,” Kalousek said Wednesday.
Translated with permission by the Prague Daily Monitor.