Czech banknotes, crowns, bank safe – illustration photo.
Prague – In order to deal with the structural deficit, the state needs to limit spending, but it will not work without tax reform, say experts. A study by the IDEA Institute and the PAQ Research agency proposes two options for adjusting the taxation of employees – a balanced one with a basic rate of 15 percent and a realistic one with a basic rate of 17 percent. The first option can bring an additional 32 billion CZK, the second 59 billion CZK. Both proposals take into account low-income workers, who are most affected by inflation, and also correct the insufficient tax progression of the Czech system, the authors of the study said in a press release.
At the same time, both variants count on other changes in the tax system, which should ideally cover most of the deficit. According to the study, there is room for taxes on “vices”, property or high-income self-employed persons (OSVČ). The government coalition has still not agreed on a joint consolidation package, which should reduce the budget deficit by 70 billion crowns, and wants to have the proposal on the table in May.
The study by IDEA and PAQ Research compares four variants of personal income taxation, in addition to two of its proposals, it takes into account high taxation before 2020, when the basic rate was 20 percent, and the proposal of the STAN movement with a basic rate of 17 percent.
< p>In the case of a return before 2020, the state would collect 122 billion crowns compared to the current setting, but it would also have a large impact on poorer employees and the progression of taxation would be low. The STAN proposal would bring an additional 32 billion crowns. “This proposal reflects one of the shortcomings of the Czech tax system, which is the relatively heavy burden on low-income earners. However, the progression only starts with highly above-average incomes, so it does not lead to a high increase in tax collection,” pointed out economist Michal Šoltés.
The proposal of the balanced version of the experts would also bring in 32 billion crowns, but the advantage, according to the experts, is that the bottom 80 percent of employees have lower rates than in the STAN proposal. The total withdrawal is offset by the higher rate of the top fifth. According to co-author and sociologist Daniel Prokop, this variant against the STAN proposal reduces taxation of people with the lowest incomes and does not affect the bottom 60 percent. “This creates space for the other mentioned taxes and savings, because these groups would also be partly affected,” he added.
A realistic option would raise an additional amount of less than 60 billion crowns. According to the study, it returns the burden of the highest income fifth of employees almost to 2020, but does not increase the burden of the poorest employees. For middle income groups, the choice is increasing, but they would still pay less than before 2020.
However, the authors of the study also point out that the state should not solve shortfalls in state budget income only by taxing employees. They also refer to this year's OECD report, which ranks “shifting the tax burden towards real estate taxes, consumption and environmental taxes” among the main recommendations. “Spreading tax increases into different types of taxes that fall on different entities and markets is economically efficient and reduces the risk of more fundamental adverse consequences on inflation, economic growth or social problems,” Šoltés concluded.