Using an emergency procedure, the Czech parliament approved an austerity package of measures that includes cuts in social benefits, public services and tax changes. The aim is to reduce the public deficit to 4.6% of Gross Domestic Product.
General information and figures
Using an emergency procedure, the Czech parliament approved an austerity package of measures that includes cuts in social benefits, public services and tax changes. The aim is to reduce the public deficit to 4.6% of Gross Domestic Product.
Unemployment rate (June 2010): 7.1
GDP (bn euro – 2010) :145.95
General Government debt (2009 - % GDP) : 35.3
Public deficit (2009 - % GDP):5.8
Source: Eurostat
[1 CZK = 0.0416 EUR]
Public Employees
An average pay cut of 10%.
Seniority increments are replaced by individual ‘productivity bonuses’: the consequence is that some categories of workers may lose up to 30% of their wage.
Cuts in social benefits
Sick pay will be reduced to 60% of the base rate during the duration of the illness. The reduction of sick pay was meant to apply for 2010 only, however, it is likely that this will become a permanent measure. In addition workers on long term sick pay will no longer be entitled to higher rates of benefit (an initial increase to 66% up to 72% from the 3rd month of the base rate). In this way, the Government plans to save CZK 2.3bn in 2011.
Furthermore, employers will have to provide wage compensation for 21 calendar days instead of the present 14 days. This measure is planned to apply until 2013, thereafter the provision of compensation would be brought back to 14 days. Half of the compensation of wages will not be refunded to employers and, in this way, the Government wants to save CZK 3.7bn. There is justified concern that workers will be under increased pressure from employers not to apply for sick leave, and to either carry on working or to take annual leave, so as to avoid placing increased costs on the employer.
Benefits for very low-income families with children are abolished without any compensation. Around a third of families who are currently entitled to this benefit have an income under the statutory minimum, they will have to apply for a special benefit for material distress, which will only partially compensate them. The measure will lead to a considerable increase of poverty rates. By abolishing this benefit, the State plans to save approx. CZK 2.5bn.
The conditions for entitlement to parental benefit will be changed and the benefit itself will be reduced in certain cases.
Birth allowance will continue to be paid for the first child only if the family income does not exceed the statutory minimum more than 2.4 times. Therefore, most families will lose the birth allowance since this income threshold states that the net income of a family (with one child) must not exceed 16,990 CZK per month. The State expects to saveCZK 1.3 billion.
Carer’s allowance will be reduced to CZK 800 per month from the present CZK 2000 in the case of the 1st degree of dependence. In addition the plans to replace direct payment by vouchers, which was due to happen in January 2011 will not happen. The State expects to save CZK 1.5bn.
It will no longer be possible for unemployed persons on unemployment benefit to have a part time job. Up to now it was possible to earn up to a half of the monthly minimum wage amount (or CZK 4,000) without losing the entitlement to unemployment benefit. Now they will have to choose between unemployment benefit or fully rely on their earnings. In this way, the State plans to save CZK 820 million.
If a worker is entitled to severance pay, s/he will not be eligible for unemployment benefit for the period that would correspond to the total amount of severance pay. The problem will arise when a worker is legally entitled to severance pay, but his employer is unable to pay (in cases of insolvency for example). Thus the measure adopted by the Government might mean that the worker concerned would be left without any income. A further reform to weaken job protection systems has been announced for 2011.
The amount of unemployment benefit will be reduced for workers who terminate their contract without a serious reason (for example, giving notice, mutual agreement). The present rates (65% of monthly average net earnings for the first two months, and 50% for the next two months) will be reduced to the minimum rate of 45% starting from the first month.
The amount of the state housing allowance will be reduced from the present maximum of CZK 3,000 per year to a maximum of CZK 2,000 per year, even for contracts signed before this legislation came into effect. Over the last seven years, the State housing allowance has been reduced by 56% (from CZK 4,500 to CZK 2,000).
Cuts in public services, transfers and public investments
Financial means for regions have been cut by nearly 20%.
Collective bargaining and labour reform
The statutory minimum wage in CZ has not been increased for 4 years; its last increase was in 2006.
Tax changes
A special tax of 50% on the State housing allowance has been introduced in 2010.
The tax-free exemption will be reduced to CZK 23,640 or by CZK 100 per month from the present threshold of CZK 24,840 per year.
The Special allowance for retired members of armed forces and police forces will no longer be tax-free and will be subject to a 15% tax.