Why did the consolidation package really upset the unions so much? Economist Lukáš Kovanda writes in his commentary that he is worried about food stamps, multi-sports and that he will lose the coercive power of his lobbying.
Union leaders belong to to the quieter critics of the consolidation package, which the government presented on Thursday last week. On the same day, a few hours later, the head of the largest trade union organization, ČMKOS, Josef Středula, called his press conference. He couldn’t have done any more thorough impact analysis of the package so quickly. Even less so, as the government itself was rather unhappily stingy with essential details when presenting it. And sometimes not only for details. Perhaps also on what subsidies for tens of billions he actually intends to cut at all.
Lukáš Kovanda: The unions claim that the impact of the government package on the family will be over 100,000 crowns per year. But it will be many times less
The unions claim that the impact of the government’s consolidation package on the average family will be over 100,000 crowns per year. In reality, it will be more like 15 thousand crowns. Where else would the money go? asks Trinity Bank chief economist Lukáš Kovanda.
However, this did not prevent the Středula trade unions from immediately subjected the package to overwhelming criticism. They then escalated this when trying to demonstrate the impact of the package on a supposedly typical family. It was originally supposed to be over 100,000 crowns per year, but at the same time the opposition movement ANO also came up with this amount. So, apparently, that’s also why the unions “ran in”. The negative impact of the package on an ordinary family is said to be even so approximately 180 thousand crowns per year.
The unions work with a model example of a family of two adults and one child. According to the latest CZSO data, there are approximately 705,000 such in the Czech Republic. If the impact on each of them were really up to 180,000 kroner a year, the state could reduce the budget deficit by some 127 billion next year on this basis alone. Instead, due to a higher tax and levy burden, he plans to reduce the deficit by only some 30 billion, and far from only burdening families with one child. It is therefore evident that the trade unions greatly exaggerate the impact of the package.
CLEAR: What the government’s consolidation package contains
The government has published a set of measures with which it plans to reduce the state budget deficit by 94.1 billion crowns next year, and by another 54.4 billion crowns in 2025. It includes raising taxes on companies and employees, taxes on tobacco, alcohol and gambling or property taxes. Self-employed levies will also increase and the state will once again introduce health insurance for employees. The reduced value added tax (VAT) rates will be combined at 12 percent, up from ten and 15 percent. Thanks to this, on the contrary, they are supposed to make food, housing and medical devices cheaper. However, other items that were previously in one of the reduced rates will move to the basic 21 percent rate.
Why do unions do this?
Unions in fact he is especially angry about the cancellation of tax incentives for a number of employee benefits, which represents a not very inclined objective contribution of the consolidation package. Likewise, unions are infuriated by the intended termination of tax benefits for trade union contributions.
From a macroeconomic point of view, it is correct that the government intends to cancel the aforementioned tax incentives. She should have explained the matter better to the public.
It’s actually simple. Those who do not have the benefit of a multisport card pay against their will for other and third party employees who have it, the swimming pool or the gym. Those who do not have food stamps pay for lunches from their own money to those employees, for example from the other end of the country, who have them. And even on this involuntary transfer of wealth from one person to another, the companies that ensure it, that issue meal vouchers or multi-sports tickets, get rich practically without work and unproductively. And which part of the money seized in this way evidently offended the trade unionists as well.
The abolition of tax benefits for trade union contributions, in turn, potentially reduces the financial attractiveness of trade union membership, which may reduce the coercive power of this still very numerous lobbying organization. Understandably, this also scares her superiors so much.
The EC paid tribute to the government. As early as next year, the Czech Republic could meet the limits for adopting the euro
The Czech Republic will already reduce the deficit of public finances to the level of the Maastricht limit for adopting the euro next year, the European Commission forecasts. This would be the first time since 2019. It would be a success for the current government, i.e. Prime Minister Petr Fiala.
Read more comments by economist Lukáš Kovanda here
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