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Anti-crisis measures do little, cost little

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Anti-recessionary measures adopted in the first half of the year by the government and its National Economic Council have so far done little to reverse the economic downturn. Analysts estimate that the measures will improve Czech GDP by a maximum of 1% over the whole year.

At the same time some economists welcome the fact that the government has not implemented more expensive measures with uncertain results, as has been the case in some other countries. They say this would excessively strain the state coffers.

The measures approved so far include above all a discount on social insurance contributions paid by companies for lower-income employees, instant VAT refunds for firms buying passenger cars, higher deductibles for small businesses and freelancers, and faster tax depreciation of corporate investments.

Analysts on anti-crunch package

Česká spořitelna’s Martin Lobotka estimates the overall contribution of the package will amount to 0.7% of this year’s GDP. “There’s obviously more that could be done,” he says, “but it would also cost much more. And it wouldn’t have as much positive effect in the open Czech economy as it would in Germany or the US, which are closed markets.”

Lobotka explains that the Czech economy suffers most from a decline in exports. “If the government spent money to encourage household consumption, a large part of it would merely help people buy imported goods, so the impact of the incentive would be small.” He adds that consumption is indirectly supported by publicly funded infrastructure projects.

A supporter of increased public spending, even at the cost of increasing the budget deficit, is Luděk Niedermayer, former Czech National Bank deputy governor and now director of Deloitte in the Czech Republic. He thinks the government should push infrastructure projects such as building new roads to boost the economy. “Countries that can afford this are launching public projects to protect jobs and help companies. We are not very flexible in this sphere,” Niedermeyer says.

Raiffeisenbank’s Helena Horská says the macroeconomic effect of some of the package is hard to measure. She says VAT refunds for company cars merely encouraged firms to postpone buying new cars from the end of last year until this spring, when the tax break came into effect; by now the measure’s effect has evaporated.

“Social insurance discounts may have saved some jobs, but no one can tell what would have happened without the discounts,” says Horská. She believes that faster depreciation of investments will only make a difference once the economy starts growing again, and says that companies now rarely invest so there is nothing to be deducted from taxes.

Parties pledge to tackle crisis

Czech political parties are finalising their policy statements before autumn’s general elections, including pledges to support financially companies and individuals affected by the recession. The most extensive lists of anti-recession recipes has so far been published by the Social Democrats and the Communists. They call for substantial state interventions, ranging from higher and more accessible unemployment benefits to loans with state guarantees for struggling companies. The two leftwing parties – as well as the trade unions – insist that the effect of the recession should not be transferred to employees, low-income groups and small businesses.

The Civic Democrats will publish their manifesto in early September. Deputy leader Petr Nečas says further anti-recession measures may become an important chapter. He will not discuss any details for now, but says the proposals should usher an economic recovery and motivate job creation. “It should be a good mix of macro- and microeconomic affairs that could come into effect in early 2010,” says Nečas. He believes the current measures, adopted by the former government of Mirek Topolánek, are sufficient for now.

A national convention of the Christian Democrats was to approve their policy statement earlier this week, and party leader Cyril Svoboda said it would include anti-crisis measures. “There will be two chapters,” he says. “The first one will propose a way out of this ethical-political and social crisis, because this is not only an economic crisis.” Svoboda says the second chapter will focus on the economy and protection of jobs. This should be achieved through support for flexible temporary jobs and tax deductions for employers who send staff to retraining courses instead of making them redundant.

ČSSD wants EU aid, faster euro adoption

The Social Democrats (ČSSD) say the caretaker government could do more to help mitigate the economic crisis. To ensure faster influx of EU funding, the party says, Jan Fischer’s team should negotiate with Brussels about new terms for project co-financing, so that domestic institutions only have to contribute 10% of the projects’ costs and get the rest from the EU. The ČSSD thinks the cabinet should also hurry to launch talks with private investors on PPP projects, particularly in motorway construction and other infrastructure projects.

The ČSSD argues that the economic downturn and the consequent high levels of public debt in practically all EU countries should prompt a softening of the euro adoption requirements. The party thinks the Czech Republic should join forces with other EU members seeking eurozone accession and push for a change of the terms. They say the EU should increase the ceiling for public sector deficit – currently at 3% of GDP – and to shorten the period of time in which candidate co

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