20 economists advise Babiš on patching the budget: scrap tax breaks, bring taxes back to pre-crisis levels

The Czech government can't agree on how to reduce the state budget deficit, so it turned to the economic community for advice. Twenty leading economists — the same group who, in an open letter back in late July, tried to talk the cabinet out of loosening budget rules and public debt ceilings — were asked a simple question: what could help the country's public finances right now.

Most converge on a formula coined by Mojmír Hampl, head of the National Budget Council: "don't gain weight when you're supposed to be losing it" — in other words, at the very least, stop handing out money beyond what's legally required. This applies above all to pension indexation: a one-off increase in a single year snowballs, raising the baseline for every subsequent year. According to Tomáš Holub of the Public Finance Centre, an extra 5 billion crowns spent on pension indexation in just one year could, with compound effects, balloon into a quarter of a trillion crowns over time.

Bring taxes back to pre-pandemic levels

Nearly all the economists surveyed agree, almost unanimously, that taxes should return to pre-crisis levels. The abolition of the so-called "super-gross wage" (a specific method of calculating labour tax) in 2021 was meant to be a temporary measure, but it turned into a permanent tax break worth hundreds of billions of crowns — and that's precisely the money the budget is now missing. According to calculations by Daniel Bartoň of the National Budget Council, scrapping this tax break, combined with changes to how tax revenue is distributed between different levels of the budget, costs the treasury roughly 150 billion crowns in today's prices.

Unconventional proposals: from tuition fees to a tax on empty flats

Among the less obvious ideas floated: introducing university tuition fees, taxing vacant flats, tightening control over healthcare spending (where the pandemic-era spike in costs has never actually come back down), and using proper data in decision-making so that politicians stop governing "by feel," as they currently do.

The most radical proposal is arguably scrapping the country's two VAT rates. According to Michal Skořepa of Česká spořitelna, the reduced rate currently makes life easier for absolutely everyone, including those who don't need the help at all — it would make far more sense to target support specifically at lower-income groups. By his estimate, abolishing the reduced VAT rates could bring the budget tens of billions of crowns in additional revenue.

Too many small municipalities

Many economists also repeat the long-standing call to merge municipalities — Czechia has the highest number of municipalities per capita in the EU, and in many of them there won't even be real competition in this year's elections. Dominik Stroukal of the Prague University of Economics and Business Metropolitan University points out that in half of all Czech municipalities, local council elections feature fewer than two candidates per seat, and many have only a single candidate list — or none at all.

Experts also flag risks in healthcare separately: the state's spending on healthcare-system payments is now, adjusted for inflation, 50 billion crowns higher per year than before the pandemic, while payments for state-insured citizens have risen from 1.3% to 1.8% of GDP — with no clear explanation as to why.

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Source: seznamzpravy.cz