Press conference after the meeting of the government held on Wednesday 7th March 2007

Martin Schmarcz, head of the press unit of the Office of the Government: Good afternoon, ladies and gentlemen, welcome to the briefing after the meeting of the government, which was rather strange as certain debate was carried out as a part of the meeting. Now I give the floor to the Deputy Prime Minister Petr Nečas who will inform you of the agenda.
Petr Nečas, Deputy Prime Minister and Minister of Labour and Social Affairs: Thank you. Good afternoon, ladies and gentlemen I will just briefly inform you on agenda of the meeting of the government; the government debated in the official part some bills that concerned in particular the bill of group of deputies, based on which certain anti-smoking measures are to be tightened up. The government adopted neutral standpoint to this bill, because similar measures are included in the Government Declaration. On the other hand, the government stated that the legislation preparation of this bill was of a poor quality and it would mean that a complex proposal will have to be worked out, which would be either in the form of a government bill or in the form of a complex amending motion of deputies. Furthermore we debated certain matters of concept character, which concerned above all the concept of tertiary education and also basic, introductory debate concerning long-term development of public finances. Regarding this issue, based on information of the Minister of Finance and the Minister of Labour and Social Affairs, we must note unambiguously that state of public finances is much worse than it had been expected about two months ago. As it is being shown, there are certain main reasons of this. The first main reason is vast extension of social expenditures, which originated in the last year, in framework of the pre-election populist package. And the second reason is that 100% of various social benefits and transfers, thanks to the activities of the former government, include valorisation clauses, which are bound with price growth index or with average wage growth index in the non-productive sphere. It means that the government, without any chance to influence it and show any will, has to adopt certain decisions, based on the existing legislation, which lead to expenditure increase regardless whether there is money in the state budget or not. It means that according the existing legislation, and it is a serious news, the deficit of the state budget in 2008 would reach 150 billion crowns provided that only basic valorisation of old-retirement pensions and other pensions is done, and provided no valorisation of all the other social transfers are done. I repeat again, it would be in the existing legislative conditions and in case the government takes no action. It is set like this by the former government. In case valorisation of certain social benefits, if the government does not take some measures if it only respects existing legislation, the deficit will range between 160 – 180 billion crowns. It means that the starting position will be much worse; it is shown that expenditures, including mandatory expenditures, expand much faster that the government declared last spring. I would give you an example from the Act on Social Services; the government informed the Chamber of Deputies last spring that no expenditure increase would occur. The government of Jiří Paroubek prepared a state budget, in which 13 billion crowns were earmarked for social services. On the basis of my motion, these expenditures were increased up to 16 billion crowns; total expenditures will reach 18-19 billion crowns in this year, including financial means from European Structural Funds and from the European Social Fund. And in the next year, to document it by a concrete example, there are threats that expenditures will be between 21-22 billion crowns. It just shows huge expansion of social expenditures, which has been started by former government. It means that based on this principal logical thinking it is apparent that the government of the CR will have to take concrete measures, including legislative changes, so that this incredible deficit increase would be stopped. In case we would leave the legislation in the existing wording, we could call the state of Czech public finances as devastated or even catastrophic. It is inheritance, which has remained this government after the former one.
Miroslav Kalousek, Minister of Finance: Nice day, ladies and gentlemen, I can confirm words of the Deputy Prime Minister that the state of public budgets is really alarming and it is worse than we had expected in the time when we were taking over our ministries. Figures that have been mentioned here by the Deputy Prime Minister Nečas are figures of so called passive scenario, of course. It would happen in case of any action of the government. And so, now there is time for good news. The government is ready, of course, to do its best to reverse this trend. Today's meeting did not concern only the medium-term outlook, but in particular that package of basic legislative measures, both on the expenditure and the revenue side of the budget, which the government will have to debate and pass it to the Chamber of Deputies, so that these measure could come into effect starting from 1st January 2008 and so that it could be possible to submit the state budget for 2008 with the deficit 3% of GNP. I remind you the speed of deficit decrease, which is mentioned in the Programme Declaration of the Government. They are 3% in 2008, 2,6% in 2009 and 2,3% in 2010. Concurrently with these restrictions on the expenditure side, the government undertakes to carry out a reform of tax rates on the revenue side. And today's debate indicated the basic steps, which we would like to take both on the expenditure and revenue side. This package will be submitted jointly, so that it would be the first reform step in 2008. I repeat again that in spite of this burdensome situation, which limits us regarding number of measures, the objectives to reach 3% deficit and to carry out the tax reform are feasible; it is evident that it would be at the expense of very ambitious, courageous measures, which the government is ready to take, and it will be possible in case of respecting certain limits, which are represented by the state of mandatory expenditures. Regarding those absolute figures, which have been mentioned here, allow me to mention one relative figure. In 2006 – 2008 expenditures of mandatory character that concern the budgetary heading of the Ministry of Labour and Social Affairs and the heading of the Ministry of Health, it would be better to use the term public health insurance, expanded by 70 billion crowns. 58 billion crowns of this amount is in the heading of the Ministry of Labour and Social Affairs and 12 billion crowns represent contributions to beneficiaries whose health insurance is paid by the state. This is included in the passive scenario that the government wants to reverse, so that the real figures would be quite different. Thank you for your attention.
Martin Schmarcz, head of the press unit of the Office of the Government: Ladies and gentlemen, there is time for your question if you are interested.
Martina Lhotáková, TV Nova: I would like to ask whether you can be more concrete regarding those proposals, those measures, whether they concern taxes or social expenditures. What exactly do you want to decrease? What should it be like?
Miroslav Kalousek, Minister of Finance: We assure you that we will be more concrete and that we will be more concrete very soon, because we must submit that package in time, so that the Chamber of Deputies could debate it in June at the latest. We decided on some absolutely fundamental variants, we assured ourselves regarding our objectives, which those variant could lead to, and we started to prepare the definite version. As I have repeated several times, we will inform you on the joint vision of the total balance, i.e. both of the expenditure and the revenue side at the turn of March and April. Be patient for some few days, please.
Martin Schmarcz, head of the press unit of the Office of the Government: Further question, please.
Jana Čermáková, ČT: Good afternoon. I would like to ask, gentlemen, about a different matter. When Minister Bursík was arriving in the morning, he said he would like to transfer the issue of Mr. Čunek to the coalition ground, so that debate could start about it. He added he would like to make an agreement with the Prime Minister Topolánek on the date of the debate. Did you debate it, would you be in favour of such solution? Do you know anything about it? Thank you.
Petr Nečas, Deputy Prime Minister and Minister of Labour and Social Affairs: No, the government did not debate it, it was not an issue for the debate of the government.
Jana Čermáková, ČT: I ask for your personal opinion regarding transfer of this issue to the coalition ground. And I ask for that the Minister of Finance as well.
Petr Nečas, Deputy Prime Minister and Minister of Labour and Social Affairs: I will present my opinion, which I repeat all the time. I firmly believe that the Deputy Prime Minister Jiří Čunek will be able relatively very quickly and efficiently refute all suspicions concerning his person.
Miroslav Kalousek, Minister of Finance: We both have an extraordinary advantage that we are not chairmen of our parties; coalition issues are solved at meeting of chairmen. Therefore this question is logically rather for chairmen.
Jana Čermáková, ČT: I have one more question. It concerns matters, about which Minister Říman was talking, regarding mining limits. Whether what he proposes – to continue in those limits - is the opinion of the entire ODS; is there a consensus in the coalition?
Petr Nečas, Deputy Prime Minister and Minister of Labour and Social Affairs: The ODS will respect the coalition agreement and the Programme Declaration of the Government, including the part concerning energy industry.
Jiří Vavroň, Právo daily: Will that tariff package concern the entire three-year period or will it be just for one or two years, or further years?
Petr Nečas, Deputy Prime Minister and Minister of Labour and Social Affairs: It will not concern packages, there will be the individual stages of a real reform of public finances. Of course, it is always prepared for the entire election period, or for further years, because our duty is to consider also the several-year budgetary outlook; but we expect that there will be several stages because they are conditioned by legislative deadlines we will have to keep to. I other words, this stage will concern the legislative, which will have to be approved and come into effect in September at the latest, so that it would be possible to prepare the state budget according to it, according the Act on Budgetary Rules. Of course, further stages will continue step by step which will come into effect in the course of 2008 or from the beginning of 2009.
Miroslav Kalousek, Minister of Finance: If I may to add something, we will inform you about the entire scenario, of course, but in the framework of this scenario steps for 2008 will be done first and then further steps will be taken. The reasons of this are legislative deadlines which are extremely cut-throat.
Hana Škodová, Právo daily: I have a question –you mentioned the concept of the tertiary education, which has also been outlined today. Which problematic points do you want to solve first, and how about deadlines and ways of the solution?
Petr Nečas, Deputy Prime Minister and Minister of Labour and Social Affairs: I do not think there are some problematic points there; I think that the government agreed on it, i.e. we want to support significantly educational programmes, science and research, as we feel that there is close link to the labour market there. It means that we must have also primary and secondary education of high quality. The government will aim at increase of number of students, at preferential development of bachelor curricula; we also want to solve the problem of extreme social barrier regarding access to university education as the barrier has markedly increased during last eight years. We were also talking about the expenditure structure from the point of view of research and development support at universities. The character of this debate was rather informative and concerned basic concept approaches; its aim was not to approve a concrete material.
Martin Schmarcz, head of the press unit of the Office of the Government: Further question, please.
Jaroslav Plesl, Lidové noviny: I would like to ask the Minister of Labour and Social Affairs, how much money should your ministry save in comparison with the state in 2008? And can you mention any concrete laws, which will have to be amended in the next year to achieve your objections? And I would like to ask the Minister of Finance, whether you debated any concrete changes of income tax and value added tax. Can you say what values will they reach?
Petr Nečas, Deputy Prime Minister and Minister of Labour and Social Affairs: It is absolutely premature to speak about any figures now. I can just say that those measures, which are within competences of the Ministry of Labour and Social Affairs, will gradually affect all laws in the individual stages of the reform, as far as expenditure and revenue side are concerned. I repeat again, there will be several stages, there will be about three of them and not everybody will be affected directly in the first stage.
Miroslav Kalousek, Minister of Finance: I will be equally concrete, perhaps a bit more. I can promise that the tax legislative will be submitted in such a manner, so that the final decision of the Chamber of Deputies would change tax rates of the income tax, corporate tax and the VAT starting from 1st 2008. We will certainly want to change these rates starting from 1st January 2008. I will inform you on concrete rates on the occasion of presentation of the entire scenario.
Martin Schmarcz, head of the press unit of the Office of the Government: Ladies and gentlemen, thank you for your interest and good-bye.