January 14, 2013
The next regular parliamentary elections in the Czech Republic will take place in roughly a year and a half. It is thus clear that Petr Nečas’s cabinet is entering the last phase of its term of office, during which it will not implement such major reforms. The government managed to complete its greatest piece of work in 2012, however. On one hand, the adopted measures will bring about the most significant changes since 1989; on the other, they were not at all easy to push through. Petr Nečas arrived at Straka’s Academy with a comfortable majority which is now very fragile, however, not to mention the spats which have riveted the ODS – the PM’s own party. Nečas had to wrangle with six rebellious MPs who did not like the government’s tax package. The government has also been regularly ‘strafed’ by President Václav Klaus over various issues.
Pension Reform
At the beginning of November, the Chamber of Deputies overrode a presidential veto, and as a result the so-called second pillar of the pension reform is being introduced. People will now be able to voluntarily transfer three percentage points of the 28% of their gross wages which goes to social security to an individual pension account – on condition that they add an amount equivalent to at least two percentage points of their own money. Participation will be voluntary, but many in the Czech media have pointed out that once the decision has been made, it cannot be undone. This change is an understandable reaction to the fact that European countries must come to terms with their aging populations. The legislation has been criticised by the opposition, however, for not bringing about a societal consensus. It is therefore possible or even likely that the Social Democrats – in the event of a victory in the next elections – will attempt to revise Nečas’s pension reform. How big the change will be remains to be seen. According to some economists, the fact that future governments could interfere with the pension system renders the current reform inscrutable. Nevertheless, a flood of advertisements can be expected in the coming weeks and months for pension funds luring Czechs to save with them. Already in January, new so-called participatory schemes will be offered by pension insurers. They will have greater scope for investment, but will also carry greater risk.
Church Restitution
In what extent and manner should property be returned to churches? This is a question for which none of the previous post-1989 governments could find an answer. But the present government did. The relevant committee of the Nečas government began to address the issue of church restitution already in 2011. The final legislation did not emerge easily, however. According to the version ultimately passed by the parliament, churches are to receive property from the state worth some CZK 75 billion on condition that they demonstrate a claim to it, i.e. that the property was seized from them between the Communist coup in February 1948 and 1 January 1990. As the media have reported, churches are also to receive compensation for real estate owned by municipalities, administrative regions and private holders in the amount of CZK 59 billion over 30 years, i.e. two billion annually plus inflation. The state, in turn, will gradually stoop paying wages to the clergy. The legislative property settlement between the state and churches was also approved by the Chamber of Deputies at the beginning of November and was pushed through over the opposition of the left-wing Senate. President Klaus neither vetoed nor signed the law, which is effective from 1 January. Church restitution is another example of how polarised the Czech political scene is at present. Finding a compromise at a time of economic crisis – which itself brings about an intensification of the often irrational jousting among political parties – is very difficult.
Taxes
Taxes have become a very topical issue during the past year. To finance the pension reform, the lower VAT rate was already increased from 10% to 14%. Higher taxes on energy, water, sewage and foodstuffs should have brought additional funds into state coffers. That this didn’t happen was a surprise. During the crisis, Czechs proved to be a very frugal nation, and began to save. In recent weeks, another battle over taxes has been waged in the Czech Republic. In December, the cabinet finally pushed an increase in the VAT rate next year to 15% and 21% through the parliament. Ultimately, the government consolidation package was even signed rather quickly by President Václav Klaus. It was unclear for a long time which tax rates would be in effect from January, as the ruling ODS had difficulty assembling the necessary votes due to a protest by six MPs, They were successful on the second try, however. The resignations of three dissatisfied ODS MPs – Marek Šnajdr, Ivan Fuksa and Petr Tluchoř – also contributed to the change. The media began to follow attentively where this trio’s further protest moves would lead. Most recently, for example, the server Česká pozice reported that Šnajdr had been appointed to the Supervisory Board of Čepro, a state-owned enterprise. The protracted deliberations on taxes were especially unpleasant for business leaders, who vociferously let their views be known.
Protests
Right-wing parties won a majority in the last parliamentary elections in 2010 because Czechs were afraid of a Greek scenario. The fear that the Czech Republic could become engulfed in the same difficulties as Greece was so strong that even though the Social Democrats won the election, the right ultimately had a majority. Playing the Greek card was only effective for limited time, however. Even though in particular those commentators who are invariably inclined towards the government’s positions insist that Czechs are prepared to tighten their belts for the long term, this isn’t completely true. Indignation over the government’s restrictive measures in combination with unceasing corruption cases (although it seems that these investigations are moving forward) have once again driven voters away from the right, according to opinion surveys. In the event of elections, the Social Democrats would now win again; a dark side of the general disgust with politics, however, is a rise in voter preferences for the Communists.
The change of mood in society was also illustrated by a demonstration in Prague last April, which was attended by some 90,000 to 120,000 protesters. Due in part to the legacy of their Communist past, labour unions in the Czech Republic do not occupy such a strong position in the societal discourse as they do, for example, in Germany, and thus they have not managed hitherto to achieve similar success. Nevertheless, a certain degree of lethargy can be observed in society – which benefits the Communists.
What Now?
Starting on 1 January, it will be possible to observe the impacts of the changes described above. All indications are that the government will already be concentrating mostly on more cosmetic changes and on improving its appearance. It will thus be interesting to observe how much the cabinet of Petr Nečas – who campaigned on budgetary responsibility – will be disposed towards various populist budget manoeuvres. In 2012, there was also a discussion in the Czech Republic on the future of the State Energy Policy, which will continue. For the time being, it seems that supporters of expanding the Czech Republic’s pro-nuclear orientation have the upper hand. The completion of Temelín is a hot topic. Although the State Energy Policy is not a classic social reform like the others mentioned here, in the long term it represents a certain foundation upon which the other parts of the house will be built. This could thus be the area where the Nečas government will have an opportunity to make a decision that will be truly strategic and important in the long term.