Press Conferences

10. 3. 200810:01

Press Conference after the Meeting of the Government, Held on Monday 10th March 2008

Martina Přikrylová, Press Unit of the Office of the Government: Dear ladies and gentlemen, welcome to the press conference after the meeting of the government. Allow me to welcome here the Deputy Prime Minister and the Minister of Labour and Social Affairs, Mr. Petr Nečas; I ask him for an introductory speech.
Petr Nečas, Deputy Prime Minister and Minister of Labour and Social Affairs: Good afternoon, ladies and gentlemen, today's meeting of the government dealt with number of issues. There were several points on the agenda which concerned conclusions of the Supreme Audit Office. But the first item that the government debated was the change of the Act on Pension Insurance, based on which a condition would be amended that concerned extraordinary valorisation. The existing wording of the law enabled valorisation only in case the price increase in the period under consideration exceeded 10%. I would like to emphasize two things. The first one is that the period under consideration is not a calendar year, in other words, this period is from August to July. The condition was set so high that it was impossible to respond to any single price swing. Therefore we propose to change the valorisation condition to 5% instead of 10%. It will enable whenever in the future to solve such situation in a system way. It means that in case of single price swing will be possible to extraordinary valorise pensions. We expect the inflation to be lower, of course, and it means that the condition of 10% would not be appropriate for period in which inflation varied between two and three percent. But just these low inflation rates are susceptible to single price swings up to 5%, in particular in period when prices of the EU and the Czech Republic are converging. There are two main channels through which that convergence is possible. It is strengthening of the rate of exchange of Czech crown and the raise of prices. It means that whenever in the future, including the accession to the Eurozone such 5% swing may occur. Based on this system measure extraordinary valorisation of pensions will be possible. We will propose to the Chamber of Deputies to approve this bill according to the clause 90 of the Act on Rules of Order, I mean in the first reading, so that it would be possible to discuss immediately the respective government order and thus to enable extraordinary valorisation of pensions starting from August. There is a period of about two months and a half which is necessary for implementation of the law. The pension increase is expected at the amount of 465 crowns. It means that the average old-age pension would reach 9600 crowns and valorisation of all types of pensions would be enabled, I mean old-age pensions, disability pensions and inheritance pensions. At the end of this year the real value of pensions would reach 112% of pensions of 1989. We hope that this proposal, this system change will not run into opposition in the Chamber of Deputies, as it is a change for next ten or even fifteen years. That was information on this issue which was debated by the government. Then the government debated several items that concerned audits in the individual ministries. The government also discussed the Draft Government Order which concerned non-production functions of agriculture, Draft Government Order on Conditions of Providing Special Prices of Publicly Accessible telephone Services and so on. That was brief information on the meeting of the government and I am ready to answer your questions, ladies and gentlemen.
Martina Přikrylová, Press Unit of the Office of the Government: I thank the Deputy Prime Minister and I ask for your questions.
Olga Málková, Czech TV: Good afternoon, I would like to ask, before we get down to pensions, whether you decided about the plenipotentiary for European courts. Who will be that person? Do we know his/her name? This item was on the agenda.
Petr Nečas, Deputy Prime Minister and Minister of Labour and Social Affairs: Yes, we approved this proposal. Excuse me, I forgot his name, but it is the existing head of the Office of the Plenipotentiary, in other words, the proposal of the Ministry of Foreign Affairs was approved.
Martina Přikrylová, Press Unit of the Office of the Government: Further question, please, Právo.
Jitka Götzová, Právo: Good afternoon, Mr. Minister, why did you cancel those special prices for telephones for needy people? Thank you.
Petr Nečas, Deputy Prime Minister and Minister of Labour and Social Affairs: I should say that it is a proposal which concerns only classic telephones and we came to the conclusion that it would be very complicated to order telephone operators something like that, as they would subsidize this matter, in fact. It means that we will be searching tools how to reach a direct relation: the state – disabled persons; in other words, not to involve private telephone network operators in this sphere.
Martina Přikrylová, Press Unit of the Office of the Government: Further question. The Czech TV.
Daniela Písařovicová, Czech TV: I would like to ask how much money that extraordinary valorisation will cost and what the source of that amount will be like. And the second question – do not you afraid of not having enough money, in case you relax conditions for valorisation? Will you have enough money for that?
Petr Nečas, Deputy Prime Minister and Minister of Labour and Social Affairs: I will start with the second question. I am not afraid of frequent valorisation. We have consulted it intensively with all offices, which dealt with the inflationary trend, I mean with the Ministry of Finance, the Czech National Bank, and the estimate was that they did not expect in the long-term time horizon that the inflation would exceed two or three percent for a long time. They expect fluctuation between these two figures, and that it would be usually near the ceiling. Nevertheless, a single swing in the future cannot be excluded and it might be above 5%, in particular because of world price increase, as this increase was caused by unexpected trend of prices in November and December. If the trend of prices was standard in November and December, as it was during the last year, the 5% swing would probably have not occurred in January. Nevertheless, the trend of prices in the world, in particular prices of energy and food commodities caused the price increase by 3% in the period under consideration between August and December of the last year and then, after addition of the inflation in January, that swing above 5% occurred. In other words, we are not afraid of frequent occurrence. Nevertheless, similar swing in the future cannot be excluded, because the Czech economy is dependant on prices in the world and because the gradual convergence to the price level of the Eurozone even after accession to Euro. Introduction of Euro may also cause this single price swing. Recent experience of Slovenia shows that this effect took place there, after all. The entire Eurozone has high inflation rate recently. It concerns also such stable economies like Spain, which show record inflation rates. As far as means used for the valorisation are concerned, the existing pension account shows surplus amounted more than 10 billion crowns. This operation will cost 6,6 billion crowns, it means that more than 3 billion crowns rest on the account, and the account shows slight surplus. Nevertheless, we have not decided on the definite way of financing. One of ways, about which I intensively negotiate with the Minister of Finance, is that it is necessary to find perhaps different way of funding, not directly from the pension account, which would enable to fund that valorisation and to maintain that ten-billion surplus. It means that we will still negotiate on the way of funding – whether pension account or another resource of the state budget will be used.
Martina Přikrylová, Press Unit of the Office of the Government: Thank you, further question, please - still the Czech TV.
Daniela Písařovicová, Czech TV: I have one more question. You were speaking about those reasons of the inflation, about high prices in the world markets, but did not also the reform of public finances contributed to this situation?
Petr Nečas, Deputy Prime Minister and Minister of Labour and Social Affairs: Of course, it also has influence on this. I would like to emphasize that the so called core inflation had, according to analyse of the Czech National Bank, unambiguously dominant effect and estimates concerning the influence of reform measures, it means change of indirect taxes, I mean increase of certain consumption taxes, increase of VAT from 5% up to 9%, introduction of fees in the health care sphere and such like, could cause an inflation impulse somewhere between 1% and 2%. It means that the January price increase could be caused by this, but price trends in November and December were crucial, because between August and December of the last year prices increased nearly by 3% without any reform impacts. It means that the influence of the core inflation is dominant and is caused primarily by energy prices and prices of food commodities in the world, not by reform measures of the government.
Martina Přikrylová, Press Unit of the Office of the Government: Thank you, further question, please.
Jitka Götzová, Právo: I would like to ask – you were speaking about shortened debate in the Chamber of Deputies and in the Senate. What are chances approving that proposal like? What would be you reply to the statement of some members of the Social Democratic Party that it is just a populist measure influence by regional elections that will be held in August and in Autumn?
Petr Nečas, Deputy Prime Minister and Minister of Labour and Social Affairs: I will start with my conviction that the system change will gain support of broad political spectrum. I am convinced that even from the long-term point of view it was a fault that the change had not been done sooner. The original change came into force on 1st July 2002, but I am deeply convinced that this amendment should have occurred sometime in the past years, because that 10% condition played a role of an alibi, as there was a mechanism for an extraordinary pension increase here, but it was hardly attainable because to reach the 10% increase is very improbable. I expect this change to gain support. I cannot imagine that a political party would try to obstruct the shortened debate in the Chamber of Deputies. I do not know what its rationale would be like. As to the accusation of populism, those deadlines are exactly given and everybody who knows something about changes of pensions and valorisations must know that we had to wait for the time when the inflation rate exceeds 5%. We had those system changes prepared in advance and we responded to the situation soon after publishing those January inflation figures. Deadlines are given and it is not possible to valorise pensions sooner than in August. Notice that in case of regular valorisation which is done as of 1st January, it must be approved by the end of September and the decision is made based on figures of August because the Czech Social Security Administration must have two months and a half for recalculation of those 2,7 million pensions, for taking necessary measures an such like. So, there are certain deadlines there which do not enable realize payments of these valorised pensions sooner than in summer of this year.

Martina Přikrylová, Press Unit of the Office of the Government: Thank you, any further question?
Jiří Novotný, Právo: I have a general question concerning number of debated conclusions of the Supreme Audit Office. Was there any alarming conclusion or were there just standard pieces of information?
Petr Nečas, Deputy Prime Minister and Minister of Labour and Social Affairs: These pieces of information were standard, in fact. The only one thing I should say, something what raised astonishment, was the conclusion of the Supreme Audit Office concerning economic activities of the Czech Consolidation Agency with its financial means and with the state property. Based on the control of the Supreme Audit Office is shown that the Czech Consolidation Agency held a Christmas party which cost nearly one million crowns. So, the government stated that it must have been fairly good party for one million crowns. That information really raised astonishment of the government. That was a consolidation!
Martina Přikrylová, Press Unit of the Office of the Government: Further question, please.
Petr Nečas, Deputy Prime Minister and Minister of Labour and Social Affairs: But it concerned the previous election period; I want to emphasize it.

Martina Přikrylová, Press Unit of the Office of the Government: Are not there any questions? We thank you for your attention.
Petr Nečas, Deputy Prime Minister and Minister of Labour and Social Affairs: Thank you and good-bye.