Fiscal policy during the transition period in the CR



•                 Main characteristics of socialist fiscal policy

•                 Fiscal policy between 1990 – 1992

•                 Fiscal policy under conservative governments

•                 Fiscal policy since 1998

•                 First fiscal reform

•                 Second fiscal reform and present fiscal policy

                                  Socialist fiscal policy scheme

•       complicated tax system

•       tax burden as much as 80 % for state corporations

•       personal income taxation 15 to 55 %

•       state budget – more or less a redistribution instrument

•       state budget – instrument of political power and illusion of paternalistic state

                         Socialist tax system – state corporation taxation

•                 Levy on (concerned banks and corp. of foreign trade): profits, payrolls, capital
depreciations, profit remainders, regulatory and price levies

•                 Income tax on (concerned all other corporations): profits, payrolls

•                 Agricultural tax on (concerned farms): profits, payrolls, lands, exceeds of
payrolls, social contributions

•                 Turnover tax: was negative – in fact a subsidy

                             Socialist tax system – personal taxation

•                 Wage tax – progressive, max. 20 %

•                 Tax on literary and artistic activity income – progressive, max. 33 %

•                 Income tax – all other incomes, progressive, max. 55 %

•                 House tax – tax on family houses

                                 Fiscal policy between 1990 – 1992

•       main goal – to decrease inflation pressures – fiscal restriction

•       specific measures:

•       reduction of the redistribution process + the aim to decrease the role of state in the
national economy

•       decrease expenditures on defense and safety, bureaucracy, subsidies

•       total state budget of Czechoslovakia split into 3 sections: federal (35 %), Czech (40%),
and Slovak budget (25 %)

                                 Fiscal policy between 1990 – 1992

                    Fiscal policy under conservative governments (1993 – 1997)

•       tax reform in 1993 – one of the most important steps in the sphere of fiscal policy

•       other aims: to follow the reduction of the role of state in the national economy

•       fiscal policy in 1996 and 1997 under the impact of parliamentary elections and monetary
crisis



                                        Tax reform in 1993

•       modern and market economy compatible tax system

•       simplification of tax system

•       two basic groups of taxes: direct + indirect

•       direct taxes: income taxes (corporate + personal), property taxes

•       indirect taxes: VAT, concise tax

•       newly introduced the system of social and health contributions (employee's + employer's)

                                Impact of the 1997 monetary crisis

•       state budget for 1997 constructed as even

•       in April 1997 – deficit 14,4 bn. CZK (cca 2,5 % of total SB expenditures)

•       first „parcel of economic measures“ – cut of SB expenditures by 25,5 bn. CZK

•       second „parcel“ in May 1997 – cut of another 18 bn. CZK

•       total cut of SB expenditures cca 43 bn. CZK, but insufficient – SB deficit reached cca 15
bn. CZK in 1997

                                     Fiscal policy since 1998

•       governmental switch → fiscal policy switch

•       economic recession

•       government followed the Keynesian economic policy – to stimulate AD and economic
performance

•       introduction of investment incentives system („tax vacation“, subsidies, etc.)

•       deepening the fiscal imbalance

•       state and public debt growth

                                        First fiscal reform

•        fiscal imbalance became a serious problem by 2002 – prediction of SB deficits for 2003 and
2004 (6,4 and 7,5 % of GDP)

•        need of fiscal reform – introduced in 2004

•        the aim: to reach the SB deficit 4 % of GDP by 2006

•        accepted measures should save cca 270 bn. CZK

•        reality: corruption scandal of prime minister – fiscal reform unfinished

•        2006 – popular steps in fiscal policy before the elections – fiscal reform practically
stopped

                                       Second fiscal reform

•       introduced by the coalition government (2006 – 03/2009) (conservatives, Christian
democrats, greens) government – since 2006

•       main features: flat tax, health care system reform, social system reform; → step by step
alterations

•       main goals: to make the SB even within 10 years, to decrease the share of mandatory
expenditures, to strengthen the economic activity