The Government disappointed us completely - CMKOS submits valid proposals
Corruption, shadow economy, illegal work, usury
Fighting corruption is a key target and measures to this effect must precede any other measures to be taken. However, these measures alone are not sufficient. Corruption is only a visible part of iceberg, only one of the tentacles of a multilayer system which has various names - most often shadow economy. Therefore, integral part of the fight against corruption must be adoption of effective measures against organised crime, tax evasion, money laundering, and illegal work, i.e. fight against all adverse phenomena existing in our society. Without these measures, which have to precede all other steps to be taken in the economic and social areas, meaningful results can hardly be expected from economic and social policy measures.
Adverse phenomena have been increasing in the Czech economy to such an extent that they tend to undermine effective governance of the economy. Massive tax evasion has eroded the integrity of the tax system and the outflow of means from the formal economy to the shadow economy has contributed towards the destruction of proper management of the State economy. In these conditions it is difficult to reach and sustain macroeconomic stability.
Creeping corruption, ever-growing tax evasion, widespread day-light robbery, growing incidence of new cases of corruption reaching the upper echelons of politics, all this undermines the stability, effectiveness and, above all, credibility of all institutions and of the legal system. Formal and informal networks of existing relationships within the Czech society have been adversely affected by irreversible changes and by the growing influence of pressure groups. This threatens to undermine basic pillars on which proper functioning of the State and of the democratic establishment has to be based. Growing corruption, one of the visible phenomena of the shadow economy, has discouraged foreign investors and, on the contrary, has encouraged inflow of illegal means administered by mafia and criminal organisations. All this has contributed to the deformation of markets and to the reduction of general effectiveness. Therefore, it appears imperative to start a meaningful fight against corruption and to prepare an action plan with a view to introducing effective measures aiming at elimination and/or reduction of tax evasion, money laundering, illegal work and other adverse economic phenomena. Effective measures against usury and against loan sharks should become integral part of this action plan.
Economic policy – how to alleviate the impact of crisis
One of the priority tasks seems to be formulation of a clear and explicit economic policy contributing towards economic growth. In the short-term, such policy should aim at alleviating the impact of economic crisis on the population and on companies, and be conducive towards starting a sustained and long-term economic growth. In the long-term, the main objective should consist of strengthening the capacity of the economy to actively respond to changes occurring in the economic cycle. This means, above all, to increase the production capacity of the economy, to increase the share of skilled labour and the capacity of industries and branches based on advanced technology and high skills, research and development. Thus to achieve a competitive advantage based on skills rather than on cheap labour, low wages and salaries.
Taxes – a neuralgic area of public finances
Main problems encountered within the Czech public finances are to be sought at the income side of the budget. We cannot get rid of ever-growing deficits of public finances without effective action in this area. Large budget deficits registered in the two preceding years are due to ill-conceived voluntaristic tax policies of the past years. The problems underlying these deficits have to be solved at source, where they originated – at the income side of public budget. The steps to be taken must be targeted at the area of taxation.
Above all, it is necessary to change the existing set-up of rates within the tax system, to strengthen direct taxation and property taxes, and to introduce progression in direct taxation. However, it is of little use at present to contemplate on the volume of these inevitable changes (for example on the tax rates, etc.). First of all, it is necessary to implement the “zero phase of the tax reform” consisting of putting all tax payers on an equal basis, and to thoroughly evaluate all existing tens and hundreds of various exemptions, reductions and reliefs, and possibly getting rid of most of them. At present, nobody apparently knows the reasons behind these various exemptions and reliefs, why they had been introduced and what purpose they were expected to fulfil. The evaluation should expose whether these exemptions and reliefs are based on genuine interests of the society or on narrow interests of various lobby groups.
A comprehensive programme aimed at fighting shadow economy, illegal work and against the corresponding tax evasion has to be developed and implemented. At the same time, it is indispensable to prepare and launch a comprehensive campaign aimed at exposing tax evasion. It is necessary to strengthen controls within the labour market concentrating on illegal work and all illegal activities putting the stability of public finances and public insurance systems at risk. All tax payers must be liable to equitable tax rules. The Czech tax system has to be changed and put in order.
An audit of government expenditure is called for
Following a similar logic one has to approach the expenditure side of public budgets. It is necessary to reject the existing approach, which is exclusively aimed at cuts in the so-called mandatory expenditures, at social transfers and at workers' wages. These ill-conceived amateur policies, on which the management of public finances is presently based, must be made subject to a justified criticism and valid reservations must be put forward. If it is necessary to make savings, it is necessary to do it everywhere. One should not accept “comfortable arguments” that highest savings can be achieved in the most sizable items at the expenditure side of the State budget, for example in the area of old-age pensions.
A detailed audit of all expenditure items in all areas of public finances has to be implemented and, based on the results achieved by such audit, meaningful expenditure reductions can be achieved. Such reductions should not be made “across the board”, but rather by considering each item individually. Before making interventions it is necessary to consider thoroughly what is paid from various individual budgets, whether all “faucets” are tightened, whether there are no leaks leading to loss of means that could be used for meaningful projects. In this way, one can eliminate pointless expenditure that should have been eliminated a long time ago. One will be surprised to learn what amount of money is concealed behind various discreet items and who concretely is taking advantage of these arrangements. Again, at the expenditure side of the budget, it is necessary to introduce elementary rules of effectiveness – in various parts of the existing expenditure it would be sufficient to introduce an elementary order.
Flows of “blood money” have to be stopped
Implementing measures described above means simply to sweep in front of one's own doorstep. If this is convincingly achieved, any future government can come forward and demand from citizens – if necessary – to accept additional sacrifice. Money obtained from people in this way constitutes actually “blood money”. Behind each “saving” in the social area one can find individual destiny of men and women, sometimes even tragedies. Moreover, these men and women, in particular the poorest from them can in no way be blamed for the present crisis. Given the present policies and existing proposals put forward by the ODS-TOP 09-VV coalition Government, poor people have already born the impact of the crisis and will be asked to make further sacrifice. Already now, they bear the impact of reduced unemployment benefits, which are barely compatible with the concept of decent living, low old-age pensions and other social transfers. Furthermore, implementation of the so-called reforms will result in considerable increases of prices of all items of basic needs, additional payments for health services, insufficient increase of pensions that in no way could cover the existing and expected inflation. For many, implementation of these “reforms” will mean hardships and poverty.
Ever-growing groups of people are under risk of unemployment. These men and women should not be treated as individuals who do not seek work and who abuse social benefits. They do not cheat or steal public finances. Real thieves and imposters have to be sought elsewhere.
We reject the proposals made by the present coalition Government, the apparent aim of which is to transform the present social protection systems in such a way that they become systems caring exclusively for the very poor. Instead, it is necessary to develop a comprehensive plan aiming at alleviating the social impact of the present crisis and of the adverse impact of any reform measures. It is necessary to develop a safety network and a comprehensive national plan aimed at reducing unemployment and poverty.
It will be also necessary to adopt measures comprising unequivocal definitions of usury, as well as ways and means how to prevent financial speculators to misuse workers' adverse financial situations by offering high-interest loans leading to unmanageable indebtedness of the workers' households. Very frequently, such situations result in seizure procedures.
No programme should be based on fear
For this Government, which pretends to be a Government implementing responsible budgetary policies, the crisis appears to be a real blessing. As viewed by the Government the crisis presents a chance of putting through the planned “reforms” in a more speedy and radical manner. It seems to be evident that further contemplated measures related to the still secret “crisis scenarios” will be confined to further cuts and added-value tax increases only. The real impact of these “reforms” will be devastating. It will hamper economic growth and depress living standards of most working people. The joint effect of economic recession, domestic cuts that strangulate economic growth, and of anti-social reforms implemented by the Czech Government will necessarily lead to great tensions not only in the economy but in the society as a whole.
Recent opinion polls have revealed that more and more people expect worsening of their living standards and higher consumer prices, they are afraid of losing job and being unable to find a new one, they expect difficulties associated with meeting instalments related to loans, etc. People question the changes, which have been under way, and the changing role of their State; the State the existence and functioning of which is paid by workers. Instead of removing peoples' concerns, new measures taken by the Government tend to widen these concerns. This has had deep adverse economic and psychological effects.
People are afraid of future developments. Even where they are still employed having a decent wage, they tend to reduce their normal purchases. The resulting lack of confidence and even traces of panic behaviour might have a more harmful effect than the current adverse developments in international markets. The Government cannot blame people for irresponsible panicking.
Historical experience includes numerous lessons showing that governance based on people’s fear has never had a long duration.
Prague, November 2011
 An amendment of act on budgetary rules adopted some years ago caused sizable accumulation of reserve funds in individual ministries, in the order of tens of billions CZK. It can be convincingly demonstrated that budgets of most ministries are inflated and full of waste and that the whole process of budgeting is ill-conceived and ill-managed.