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Ministry opens up tax debate

ČSSD decries plan for 'super' tax combining social, health payments

By Paul Voosen
Staff Writer, The Prague Post
April 9th, 2008 issue

Miroslav Kalousek’s ambitious tenure leading the Finance Ministry has taken another leap forward, as the ministry has proposed a second, sweeping set of reforms to the country’s taxation and social security system.

The ministry’s proposal would unify income tax, social security and healthcare payments into one “super” tax; merge the collection of these payments; and cancel a raft of tax exemptions, among other changes.

“This will be the first complex reform of the tax system since 1993,” said Deputy Finance Minister Petr Chrenko at the press conference announcing the plan April 3.

While the proposal seeks to restructure the tax system, it does not attempt to alter the overall tax rate, which was adjusted as part of the first round of public finance reforms.

Those reforms, which came into effect Jan. 1, introduced a flat 15 percent income tax and the concept of “supergross” wages that include the social security and health insurance costs paid by companies.

The ministry’s reforms seek to push this supergross concept further, merging the flat tax with social payments into one combined tax.

Currently, social payments are partially withheld from workers’ paychecks and partially paid by companies as separate expenses. The ministry would shift the payments made by companies into workers’ salaries, an exercise in bookkeeping that, while not putting any additional financial burden on employees, would establish a precedent that individuals are responsible for social contributions, not companies.

“These proposals do virtually nothing to change the standing conditions,” said Kalousek, a member of the Christian Democrats and partner in the ruling coalition. “They only make the system simpler and give it the correct name. The change will not deprive anyone of their income.”

The opposition leading Social Democrats (ČSSD) are strongly opposed to bundling social security as part of a catch-all tax and, if returned to power, the party will seek to restore a progressive tax system, said Bohuslav Sobotka, the ČSSD’s shadow finance minister.

“What we will not support is the abolishment of social security insurance — or possibly health insurance — and its replacement with some sort of ‘super’ tax,” he said.

The ČSSD does support one proposal made by the ministry that would merge the offices collecting income tax and social payments, cutting excess bureaucracy. With the support of the country’s two largest parties, this could be the most likely part of the plan to pass muster.

“There may be something like one tax established but in reality I expect the state will keep those accounts apart,” said Aleš Michl, an analyst for Raiffeisenbank.

Debate about the ministry’s plan will continue through the summer, with the government expected to address the reform by year’s end.

Paul Voosen can be reached at pvoosen@praguepost.com

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