Press Advisories

2. 9. 2010 12:11

Cost-cutting Budget For 2011

Petr Nečas' government has prepared a cost-cutting budget for 2011. Because of its cuts, the deficit will be cut by up to CZK 30 billion. The government plans a balanced budget by 2016.

"The development of the state budget is still being affected by the recent crisis. Despite this, the Czech economy finds itself at the phase of a revival of the economic cycle," according to documents on the state budget. According to the government proposal, the deficit will fall to CZK 135 billion next year. The volume of revenues should be CZK 1,044.8 billion and the volume of expenditures CZK 1,179.8 billion.

"Wages fell for thousands and thousands of companies in the business sector last year. Hundreds of thousands, possibly millions of our fellow citizens have experienced a freeze or even a decrease in their wages in recent months. And the public sector must also breathe with the economy; not only the business sector, but also the public sector," said Prime Minister Petr Nečas, explaining a decrease in the number of state employees as a cost-cutting measure.

The cuts will now affect state administration as a whole, and according to the prime minister, it is also up to individual ministers to handle their first test. "Czechs gave a clear yes to a government of fiscal responsibility in the elections. If in two years we have wasted the opportunity and people's will to carry out cost-cutting measures, then it will be very difficult for us to get out of debt," the prime minister said.

What Are Some Examples of the Planned Measures?

The across-the-board cuts will relate to decreases in regular expenditures for ministerial operations and other state institutions, and decreases in investment expenditures. State employees' pay will decrease by 10 % with the exception of workers in education; teachers will on the contrary increase by 3.5 %.

In addition, expenditures for transportation infrastructure should decrease, which should, as an end result lead to tougher negotiations with construction suppliers.

In the area of social support, the payment of maternity benefits will only occur with the first child, and the payment will be conditioned upon the family's overall income not exceeding 2.4 times the minimum standard of living. There is a proposal to amend the term for drawing down parental benefits to 4 years.

In addition, the social benefit paid in connection with a payment for a child for the lowest-income families (less than twice the minimum standard of living) will be cancelled. It is assumed that the pure savings effect will be partially compensated by a shift to a system of benefits to assist in times of material need, where benefits will be tested against income as well as assets.

An amendment to the contribution for care for the handicapped is proposed so that the benefit for the first degree of dependence on the assistance of another person would be decreased from the current CZK 2000 to CZK 800 per month. Savings from these measures are estimated at more than CZK 1.5 billion. Kč. The amount of additional benefits would remain the same for the second to fourth degrees of dependence.

As of next year, a 50 % withholding tax on the payment of support for building savings should be put into place, as will taxation of pensioners with income greater than triple the average monthly wage, a tax on contributions for soldiers' housing, a tax on service benefits for members of the armed forces and security service related to their service and the taxation of reimbursements for constitutional officials; the tax exemption for deposits on building savings will be cancelled.

All of the measures on the expenditure and revenue sides should lead to a balance with expected results for 2010 which will lead to a decrease in the state budget deficit of nearly CZK 30.1 billion. Kč. "Due to the year-on-year improvement of economic performance of most other subjects of the state budget it will lead to more positive development trends in the public finance results," the government budget proposal states; it can be found in the Library of Proposed Legislation [in Czech] at

Government Starts Savings With Itself

Planned budget cuts for next year include the continuation of cuts the Nečas government has prepared for itself. According to coalition proposals this will lead to the taxation of reimbursements for MPs and an additional 5 % pay cut for constitutional officials (pay fell by 4% last year).

The government of the ODS, TOP 09 and VV parties is also three ministers "poorer" and decided to cut the contribution to political parties by 5 %; two years later by one-tenth and from 2014 the contribution per voter will be an additional one-tenth lower.

Cuts Will Come First, Then Reforms

The government had to proceed with budget cuts immediately in order to present a budget in time for next year that saved more. The government is just starting the reforms themselves.

"What awaits us is reform of the pension system in such a way as to be sustainable in the long term and able to react to the changing demographic structure of Czech society. In the same way we plan to make changes to the health care system toward increased effectiveness. Last but not least, we are preparing to pass measures that will lead to increased transparency in the area of public contracts. We are planning to shrink the space for corruption in the public sector, which could be one of the key tools for savings," Nečas said, counting off his government's reforms.

In its programme announcement, the government has committed to supporting the creation of new jobs, and will propose, in connection with social partners, changes in the labour law which will lead to such things as increased motivation for employers to create jobs. The government's entire programme announcement can be found at

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