Czech Government Meeting

Item no. 3 – Amendment to Act No. 243/2000 Coll. on Budget Allocation of Revenue of Certain Taxes to Territorial Self-Government Units and to Certain State Funds (the Act on Budget Allocation of Taxes) was approved by the Government. This amendment newly regulates only provisions relating to municipalities. It increases budget receipts of smaller municipalities and removes defects of the existing Act. The share of municipalities in the total national revenue from shared taxes is increased from 20.59% to 21.4%, which represents, in absolute figures, a CZK 4.6 billion increase for municipal budgets.

The amendment offers to small municipalities more possibilities to increase their expenses thanks to a new set-up of size category coefficients and also to the introduction of two new re-distribution criteria (simple number of the population and area of the municipality), each weighing 3%; the weight of the sole criterion which has been used until now (restated number of inhabitants) is reduced to 94%.

Only 4 instead of the current 14 size categories are introduced; the leap transitions between size categories of municipalities, which caused the unfortunate practice of bribing inhabitants to induce them to change their permanent residence, are eliminated. Municipalities with the number of their population closely above the relevant limit used to have unfairly a much higher per capita income than municipalities with the number of their population closely below such limit. Only such part of the population which exceeds the relevant category size limit will be newly multiplied by the higher coefficient (e.g. if a municipality has 320 inhabitants, 300 of them will be multiplied by 1 and the remaining 20 by 1.0640).

Minister of Finance Miroslav Kalousek stated in this respect: “I would only remind that it was the objective of the government proposal to replace this incremental progression, the 14 steps resulting from the 14 size coefficients, by a smooth curve and to strengthen the income base of smaller municipalities so that they are able to co-finance EU projects ... The government proposal brought benefits to 97% municipalities and this variant was lees advantageous for only 3% of them … The costs of the variant approved by us will exceed the costs of the government bill by 2.1 billion ... The final variant strengthens the income basis of municipalities by 4.6 billion, which means that it is enhanced by 2.1 billion in comparison with the government proposal and by 4.6 billion in comparison with the current situation.”

Prime Minister of the Czech Republic Mirek Topolánek added: “Nothing is changed with respect to the large cities – the four largest cities: Pilsen, Ostrava, Brno and Prague. No growth occurs there, which means that the progression is being reduced ... In the following year, of course in case of change of taxes, tax revenue and other tax weight in the entire taxation system, the budget allocation of taxes will have to be different and it is a question whether we will also adopt in such year a different construction and type of such shared taxes and the size of the share of municipalities and regions in such shared taxes. This means that I consider the next year as transitional. The key discussion concerning changes of budget allocation of taxes is related to the change of the taxation system”.

Item no. 4 - Amendment to Act No. 243/2000 Coll. on Budget Allocation of Revenue of Certain Taxes to Territorial Self-Government Units and to Certain State Funds (the Act on Budget Allocation of Taxes) in Relation to Regions was approved by the Government. This amendment proposes an increase of the percentage by which the regions participate in the volume of shared taxes by way of the transfer of funds from the chapter of the Ministry of Education, Youth and Sports to the tax revenues of regions to be used in funding of regional education.

Under the submitted proposal, the percentage of shared taxes allocated to regions is increased from the current 8.92% to 14.13%, while the existing range of shared taxes will not be changed. The increase of this percentage is equal to ca CZK 30 billion. This amount includes wages and levies of pedagogues and other employees, funds for financing other non-investment expenditures in regional education and a 1.5% valorisation of funds.

These funds are proposed to be transferred under independent competencies of the regions, which will require an appropriate amendment to the current wording of the Education Act. A necessary prerequisite without which the proposed transfer cannot be carried out is the simultaneous amendment to the Education Act, as well as other laws, if necessary. This is not expected to interfere into regulations determining salaries and placement of employees in salary categories.

Minister of Finance Miroslav Kalousek stated in this respect: “The last amendment relating to regional budgets came into force in 2005 upon Špidla's government proposal ... The total volume of shared taxes to be allocated to regions, which was stated in the government proposal presented to the Parliament, amounted to 14.13%, which corresponded to wage funds for regional education. After a discussion in the Chamber of Deputies, this proposal was curtailed to the current 8.92%, which resulted in a non-systemic situation where the regions assumed responsibility for regional schools but the relevant money, i.e. the tax funds for financing wages of pedagogues at such schools, remained an income of the state budget and was paid out of the chapter of the Ministry of Education.”

Item no. 5 – Proposal of the National Allocation Plan of the Czech Republic for the Years 2008 - 2012 was approved by the Government and represents one of the key elements of the scheme of trading in greenhouse gas emission allowances, which was introduced in the EU by Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC (hereinafter the “Directive”). The European trading scheme is a tool whose purpose is to help fulfil European Union's commitment resulting from the Kyoto Protocol. This commitment, which is being fulfilled by the Czech Republic, represents a reduction of greenhouse gas emissions within the monitored period (2008-2012) by 8% in comparison with 1990.

The NAP was prepared with an emission ceiling of 86.835264 million ton of CO2/year. This quantity included a reserve for new participants in the amount of 1.29 million allowances and a reserve for joint implementation projects in the amount of 99,000 allowances. As opposed to the former proposal, the sector classification was cancelled and enterprises are divided into two groups – small establishments (with annual emissions up to 50 kt) and large establishments (with annual emissions over 50 kt). The purpose of this measure is to protect small entities in EU ETS, mainly due to a smaller diversity of their production and customers, higher burden represented by transaction and administrative costs, limited capital reserve that can be used for modernization and large-scale, unpredictable production fluctuations. The 2005 and 2005 emissions were taken as the basis, since these data have been independently verified. The same procedure was elected by the European Commission in setting allocations for individual member states.

The Deputy Prime Minister and Minister of the Environment Martin Bursík noted is this respect: “The European Commission allocated to us 86.8 million ton a year and it was up to the Ministry of the Environment to present, in cooperation, with industry and in a dialogue with all industrial unions, a methodology and a proposal for the distribution of the allowances ... We have presented a methodology which is transparent and fair, which gives and which divides firms into small and large. The small establishments are those generating up to 50,000 ton of CO2 a year, the large ones generate over 50,000 ton. This method is slightly preferential with respect to the smaller firms with their higher production flexibility and fluctuations of production and thus logically of emissions, which could damage them. These firms are allocation 7% of emission allowances above their average value of emissions in 2005 and 2006, which were independently verified …The larger enterprises get an additional 1.3 % ... The European Commission is preparing a new energy package for the end of the year, which will establish a trading scheme based on auctions. The companies will purchase their allowances by themselves at the market and we will no longer have to negotiate with the European Union about the amount of allocation for individual member states”.

Item no. 8 – Establishment of the Commission for the Development of Brdy Region

The Czech Republic Government agrees with the establishment of the Commission of the Development of Brdy Region, which will assess the possibility of the development of the region neighbouring with the southern and south-western part of the Brdy military area (the “Commission”). At the same time, the Government orders the relevant ministries to appoint their representatives in the Commission at the deputy minister level and also suggests to the governors and mayors of the affected municipalities to do the same.

Prime Minister of the Czech Republic Mirek Topolánek noted at the press conference in this respect: “As we clearly declared several weeks ago at the meeting in Spálené Poříčí, the Commission will be comprised of representatives of individual ministries at the level of deputy ministers ... This commission should present, by 31 October, its statute, rules of procedure and basic principles of submission and drawing of funds for projects, because it is up to magistrates and municipalities to present projects and it is not the task of the government to search for them ... We will offer funding out of four standard sources – regional programmes, ministerial programmes, European money or assistance in designing these projects, which will be an extra expenditure from the state budget, guaranteed by the Ministry of Finance, which is not based, more or less, on the need, but on a certain volume which we have been discussing until now; however, it will be in the range of hundreds of millions crowns … They should present certain procedures through which this process will be concentrated from these four different sources to the Brdy region. They should clearly define the conditions under which such funds can be drawn … “.

Membership of the commission:
Chairman:
Ivan Fuksa, Deputy Minister of Finance
Members:
Martin Barták, Deputy Minister of Defence
Jiří Hodač, Deputy Minister of Transport
František Pelc, Deputy Minister of the Environment
Jiří Vačkář, Deputy Minister for Regional Development
Miroslav Jeník, Deputy Minister of Labour and Social Affairs
Ivo Hlaváč, Deputy Minister of Agriculture
Michal Sedláček, Director of the Section of Coordination of European Policies of the Government Office
Vladislav Vilímec, Deputy Governor of the Pilsen Region
Josef Vacek, Deputy Governor of the Central Bohemian Region
Pavel Čížek, Magistrate of Spálené Poříčí
Josef Vondrášek, Magistrate of Rožmitál pod Třemšínem
Lucie Mrázová, Secretary to the Government Co-ordinator for Anti-rocket Defense Communication, Government Office

Press Department of the Czech Republic Government Office