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Crisis and austerity in the Czech Republic

Deadly downward spiral exposed by Social Watch

Conditions of life in the Czech Republic worsened last year, but the Government is persisting with policies like those that led Greece into its current crisis. This bleak analysis comes from the fifth annual report by the country’s Social Watch coalition, which also questions the budget cuts that have been made and highlights their negative impact on families and on the national economy. Other critical points it examines are political corruption, tax evasion, gender inequity and serious deficiencies in environmental protection. A WDEV summary


The study was presented in Prague this week. Its title, The Czech Republic is going into a deadly downward spiral, is apt because it reports on a range of problems: unemployment has risen to 10%, the Government’s economic reforms are destroying the country’s economy and harming families and society in general, corruption and capital flight to tax havens have worsened, environmental protection instruments are almost inoperative, the media are incapable of providing relevant information about what is going on, and there is less official cooperation with civil activities to tackle the crisis.

* Economy seriously deteriorating

The editor of the report, Thomas Tožička (Ekumenická akademie) explained that “In most sectors the situation has not improved in the last five years. The country’s economy is seriously deteriorating due to the incompetence of the Government and its advisers.” This situation is aggravated by deficiencies “in the information the media transmits, and the public feels less and less involved in the management of the things that affect their lives.”

According to Tožička, who is also a member of the Tax Justice Network, tax evasion is costing the treasury some 140,000 million Czech crowns (more than 7,000 million dollars), and the use of tax havens and offshore centres by 1,300 companies another 40,000 million crowns (more than 2,000 million dollars). “This money is irretrievably lost to the Czech economy, which is shedding tens of thousands of jobs because of it.”

Tožička says the Czech Republic is one of the countries that suffer most from the scourge of tax evasion, and he has calculated that if all taxes were duly paid 60,000 jobs could be created. The economist Ilona Švihlíková (Alternativa zdola), co-author of the report, said “Fiscal austerity suffocates domestic demand and puts a brake on gross domestic product growth... The Republic is still very heavily dependent on the external economic environment. The Government has cut social spending (a freeze on pensions, the abolition of housing subsidies, etc.) and increased indirect taxation like value added tax (VAT), and all this is bearing so heavily on the elderly and other population sectors they are in danger of sliding into poverty or indigence.”

* Social spending below euro-zone level

Švihlíková added, “The government is destroying domestic demand, which has a negative impact on the tax yield.” This is a similar process to what happened in Greece before that country stumbled into its current economic crisis. The Czech Republic is keeping social spending below the average euro-zone level, which means “…it is in a deadly downward spiral towards the total destruction of its public sector.”

According to Švihlíková, the term “deadly downward spiral” is not “emotional” but “technical” because “It describes a situation of fiscal adjustment that is so severe it is strangling domestic demand and even hitting the expected yield from VAT, and there are still more cuts to come. We are in a deadly downward spiral.”

The study points out a range of negative impacts that are due to the fiscal austerity measures the Government has implemented “without sense or vision”. The authors of the report estimate that increased indirect taxes like VAT and reduced social spending is harming the poorest sectors of the population. They also calculate that defective public contract procedures and other cases of corruption have caused around 100,000 million dollars to be lost.

* Persisting gender inequality

Marcela Adamusová (Fórum 50 %), the author of the chapter on gender inequality, points out that this injustice is manifest in a whole range of problems including a lack of day nurseries, too few part time jobs or flexible employment regimes, reduced maternity pay and reduced allowances for families with handicapped children. She maintains that these policies and others like them are particularly damaging for single mothers who do not work and remain at home looking after their children.

The increase in VAT has made food, medicines and other household consumption items more expensive, and it has eaten into the budgets of families with small children. In the face of this scenario, last year the Government’s Council for Equal Opportunities among Men and Women did nothing. As Adamusová comments, “Gender equity has become a peripheral question.”
One positive change has been a slight increase in the number of women in political positions, but, according to Adamusová, this is not the result of systematic action by the authorities or the political parties.

* Continuing environmental destruction

As to the environment, Milán Štefanča (Nesehnutí) criticizes the dismissal last year of dozens of experts from the Ministry of the Environment. He also criticizes the restrictions on public participation in decision-making processes about infrastructure works and environmental protection. The measures the government has taken in this area “can, without exaggeration, be called a systematic effort to destroy environmental policy.”

The Ministry of the Environment has had “a limited regulatory effect” and has allowed “the great scandal” of “large scale cutting” in the Šumava National Park, which is supposedly the most protected area in the country. The report also criticizes tax exemption that is granted for some economic activities that actually cause pollution.

The Social Watch coalition in the Czech Republic is made up of the following organizations: Ekumenická akademie Praha, Gender Studies, Fórum 50 %, Masarykova demokratická akademie, Nesehnutí, Trust pro ekonomiku and the Eurosolar society.

* Social Watch Česká Republika: Česka republika se řiti do smrtici spiraly, 24 pp, Praha 2012. Available in Czech and in English.

Recommended citation: WDEV summary (2012) ‘Crisis and austerity in the Czech Republic’, World Economy & Development In Brief (WDEV), Luxembourg, 24 Aug (www.wdev.eu)

Posted: 24 Aug 2012

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