According to many observers, the ease with which the Premier and his ministers assume the merits of the boom is highly questionable
It is July and the Prime Minister Bohuslav Sobotka takes his election tour through the village festivals and county celebrations of Southern Moravia where he is a regional leader of the Social Democrats in the Chamber elections. “I consider that the greatest success of my mandate is the unemployment rate of three percent”, says Sobotka, who does not stop at unemployment and takes credit for a number of other measures: the increase of minimum wage, the GDP growth rate, the increase in salaries and so on. Overall, according to the Prime Minister, Czech Republic’s nowadays growth is due to his government.
“The ability, the courage and the art of doing business reflect in the economy’s growth. If anyone should claim the success of our economy, then it would be the entrepreneurs and tradesmen”, notes Jaroslav Hanák, president of the Svaz průmyslu a dopravy ČR, the Union of Transport and Industry, the leading Czech business association.
More and more laws and more and more public servants
Even the opinion of the vice-president of Hospodářská komora Čr, the Czech Chamber of Commerce, Irena Bartoňová Pálková, is quite trenchant. According to her, this executive’s three years and a half brought a significant deterioration of the business climate. “Bohuslav Sobotka’s government is by far the worst that the country has had since the Velvet Revolution, as far as businesses and freedoms of citizens are concerned”, says Bartoňová Pálková, who is a member of ODS (Civic Democratic Party), one of the center-right opposition parties.
The complaints about too many laws and regulations are now part of the typical themes of electoral campaigns. There are more and more regulations and the state uses them to pounder on the honest people instead of pursuing the dishonest ones, repeat the entrepreneurs and their associations. According to critics, such measures include monthly monitoring declarations for VAT taxpayers and the Electronic Ticket Register (Elektronická evidence tržeb, Eet). “The price we pay to take a big step and strengthen loyal competition is not negligible”, admitted the former Finance Minister Andrej Babiš referring to his headlight measure Eet.
However, opinions do not seem unanimous even among business owners. The Trade Association has supported the Register and many entrepreneurs seem to concur on the topic of fair competition. The Register was ranked first in the Competition Law of the Year reserved to the business public. However, the same coalition parties foresee in their programs a revision of the system, which, therefore, underlines a possible problem.
The way the government used its major available resources generated by the economic growth created many disturbances. “Every government since 1990 promises to reduce the number of public servants but only ours succeeded” claims Miroslav Kalousek, leader of the Top 09 conservatives and minister of Finance in the Nečas government, the center-right executive that guided the country from 2010 to 2013.
In fact, having Sobotka as Prime Minister and Babiš as the Minister of Finance, the government spending has increased in three years by about one fifth to 162 billion crowns and represents the highest unrestricted outflow of the state budget. The public sector wage growth has surpassed that of the private sector and nowadays the public servants have on average a higher salary than the private sector employees do. However, some increases were difficult to avoid. In the public health system, the government had to raise the salaries to counter the exodus (threatened and real) of doctors and other health workers to Germany, Austria and other countries where they would be better off.
Center government employees have seen a considerable increase in their income after the approval of the Law on Public Careers, legislation required for being able to benefit from European funds. It is more difficult to evaluate the salary improvements for teachers, who are not required to increase their engagement, especially on the side of professional upgrading.
The coalition is defending itself against the allegations of squandering public resources by recalling the deficit reduction. In comparison to 2011-2013, the deficit has indeed decreased and in 2016, a financial return of 60 billion crowns was achieved. However, the budgetary development is highly connected to the European funds. In 2011-2013, the state co-financed a great number of European projects, but it is struggling to be reimbursed by Brussels due to corruption and doubts about the control mechanisms. Thus, the EU’s reimbursements have accumulated and in 2015-2016, they doubled compared to previous periods by weighting more than the income tax revenue, for instance.
Instead, the investments dropped-down while research maintained its position. It was expected more from a coalition that had promised to increase the investments over the years of austerity. One of the most visible results of this policy is what is happening in the construction sector, one of the private sectors that is traditionally most reliant on the public one. Even though the economy runs smoothly, the building production is still far from the predicted levels.
The unsuccessful transformation
“This government was only fortunate enough to be in office in a period of recovery of the European and world economy”, states Pavel Kysilka, former front figure of Česká spořitelna and amongst the most well-known economic analysts in Czech Republic. In an economy that is strongly linked to the EU and to Germany in the first instance, many factors that determine the growth or the depression of the economy are out of the government’s reach. Most certainly, the economy has been stimulated by the partial devaluation of the crown and by a tax and social climate that are very open to foreign investors. The recoveries of German and neighboring economies restored confidence of Czech consumers, who due to a salary increase resumed spending.
Entrepreneurs contested Sobotka’s government especially in relation to the labor market and foreign investment support. The classic drop that overflowed the cup was the state subsidy of half a billion crowns, granted last year in November, to Bosch for the expansion of its center in České Budějovice. Vladimír Dlouhý, the president of the Czech Chamber of Commerce expressed an opposite opinion: “I have long been against foreign investment incentive measures, because they discriminate against local businesses, which often are more powerful and bring greater added value than foreign companies”.
According to entrepreneurs, by supporting the major assembly line projects, the government has contributed to the current lack of workforce without being able to bring in the country productions of higher benefit. In fact, the Ministry of Industry and Commerce begun to set up new investment incentive politics starting only in spring 2017; nevertheless the need for these changes has been a topic for many years.
We all know that the time to repair the roof is when the sun is shining. The sun has been shining upon the economy for three or four years already but the government stays still”, states Kysilka. Through its measures, the government sought to find internal reserves from which to acquire additional resources for an economic and industrial system whose potential is in decline. It performed a maintenance on a car that has a twenty-year old millage, without major repairs or plans for the future.
Finally, Sobotka’s interlocutors at the southern Moravian festivals concurred and therefore, in an economy depending on abroad, they were complying with the tendency to impute to the government the successes and failures of the economy. Machiavelli stated in The Prince that the good fate of a politician depends at least half ways on the unpredictable destiny. Sobotka’s government is its living proof.
by Jakub Horňáček