Cabinet approves 2011 austerity budget

The Czech Cabinet approved next year's state budget Sept. 23, Prime Minister Petr Nečas announced at a press conference following the seven-hour meeting.

The 2011 budget has been planned with a 135 billion Kč ($7.3 billion) deficit, or 4.6 percent of GDP, with expenditures reaching 1.18 trillion Kč and revenues projected at 1.04 trillion Kč. The budget has been created with a mind toward austerity, as the government both tries to cut expenditures to the very minimum and find ways to boost revenues that have been hit by unemployment and a slower economy.

One way Nečas' Cabinet wants to raise revenues is by reducing tax relief for taxpayers for one year. Tax relief is defined as the amount that can be deducted from a worker's salary before income tax is calculated.

Next year, the government will tax the pensions of workers whose salaries are more than three times the national average. In addition, a 15 percent tax will be levied on employer contributions to superannuation funds (retirement programs) if workers decide to withdraw pensions before they turn 60. The result will either drive employees toward their own, voluntary funds or simply mean pension funds will benefit from many more longer-term clients, said Markéta Šichtařová, director of Next Finance.

"Is this supposed to be the motivation for voluntary contributions?" she asked. "Or is this rather a victory for the pension funds, where the clients will deposit longer-term funds with them, which will be all the more risky for the clients?"

On the expenditure side, the government is looking at civil servant salaries as a way to cut spending, but that tactic is likely to cause conflict with unions. Nearly 40,000 people attended a rally Sept. 21 in protest of salary cuts in Prague, and the trade unions are threatening a strike in mid-October.

The 2011 budget reckons with a 10 percent reduction in spending on salaries, which will likely produce a mix of layoffs and pay cuts to achieve a total reduction of 10 percent. The pay cuts, plus wage freezes during the following three years, through 2014, will equal a 20 percent reduction in salaries, Finance Minister Miroslav Kalousek said on Czech Television Sept. 26.

"One can read in the coalition agreement that, during the election term, the reduction amounts to 20 percent. Given the previous development, this is really 20 percent," Kalousek said, referring to the annual 3 percent to 4 percent annual wage increases public salaries had enjoyed in recent years. The 10 percent cut next year is the absolute minimum reduction the government can make in order to reach an acceptable deficit, he added.

Nečas said after the protest he would continue to hold talks with the unions, but would not change the Cabinet's position on wage cuts.

The Cabinet's proposal must still be approved by the full Parliament.

Claire Compton can be reached at
ccompton@praguepost.com