CZECH REPUBLIC: A Century of Welfare Nears Its End

By Zoltán Dujisin Reprint | | Print |

Zoltán Dujisin

PRAGUE, Oct 22 2007 (IPS) - The reforms proposed by the governing coalition in the Czech Republic could dismantle not only the most successful welfare state in the post-communist region, but also break a long tradition of social solidarity in a country that boasts the lowest poverty rate in Europe.

Only 8 percent of its population falls under the EU-defined poverty line, which puts it ahead of countries such as Sweden and Denmark, and faring far better than Britain or Italy.

The Czech Republic, among the wealthiest of the European Union (EU) member states who joined in 2004, has the strongest welfare system in Central and Eastern Europe.

The Czech government has now put forward a series of tax and social policy changes to avert the country&#39s growing indebtedness which are to be implemented at the beginning of 2008. The measures were approved by parliament on Aug. 21 after months of wrangling.

The governing coalition claims the reforms are beneficial to all, and just a first step in more drastic changes to come, but the opposition left wing forces claim the reform will harm everyone outside the higher strata of society.

"The population is split, and the battle is on welfare," leading Czech sociologist Jiri Musil told IPS. "I would like to see a softer and cautious change, because this might result in social conflict and tensions, and even harm economic growth."

According to Musil, the danger lies in the large lower-middle class sector, especially single mothers and pensioners, who could fall under the poverty line as a result of the reform.

The measures envisaged by finance minister Miroslav Kalousek will considerably cut welfare benefits, namely parental and sickness benefits, children allowances, as well as social security benefits for those with higher incomes.

The health ministry headed by Tomas Julinek will introduce payments for prescriptions and doctor visits.

While the ruling parties come short of a majority in an evenly split parliament, the government approved its plans thanks to the support of two former social-democrat deputies who abandoned the party immediately after last June&#39s general election.

But even among the majority governing Civic Democrats (ODS) there was strong opposition to what they called a coward reform.

A sector of ODS deputies, backed by the right wing press, accused Prime Minister Mirek Topolanek of lacking leadership and yielding to pressure from considerably smaller coalition parties.

The deputies threatened to vote against the package in parliament, but a compromise was eventually reached with the further lowering of income and corporate taxes.

Income taxes, previously of a progressive and redistributive nature, will be lowered to a 15 per cent flat rate in 2008 and 12.5 percent in 2009, whereas corporate tax, presently at 24 per cent, will sink to 21 percent in 2008, to reach 19 percent in 2010.

Czech officials hope that reduced corporate tax will attract foreign companies that have been leaving the country to establish themselves further east.

The reduced value added tax (VAT) will rise from 5 to 9 percent, and new environmental taxes will be introduced thanks to pressure from the junior governing Greens.

The social democrats, who promise to reverse the reform once back in power, have criticised the measures for worsening the state&#39s budget losses, harming economic performance, and bringing additional hardship to pensioners and the middle class.

Topolanek responded that calling the "reform a reform of the rich is a typical socialist trick." He said "free riders of the social welfare system" would lose out whereas "highest income groups…will no longer be so immorally taxed as they have been."

Some commentators have perceived the reforms as a challenge to the Czech solidarity-based society, which has strong and pre-communist historical roots, in spite of an influential presence of neo-liberal elites in politics, media and the educational system.

Jiri Musil says the 1918 Czechoslovak independence brought an important "silent social revolution" to a country with a large middle and working class. Musil calls it a "radical democracy with socialist ideals" which gradually implemented generous health, social and unemployment policies.

A traditionally weak aristocracy, and the "plebeian" character of the population, with its stress on equality, proved essential for such a system to emerge in a society still maintaining its equalitarian tendencies "in both the good and the bad sense," says Musil.

Polls indicate that only one-fifth of Czechs support the reforms, even though the governing ODS was elected by voters dissatisfied with the inaction of previous social democratic cabinets.

The social democrats, claiming to protect social stability, had always opted for small adjustments as the country has experienced years of regular economic growth.

Whereas the 1990s saw two ODS governments with a heavy rhetorical commitment to pro-market reform, then prime minister and current President Vaclav Klaus was cautious with curbing social spending, fearing loss of popularity.

The Czechs&#39 challenge resonates in the region. Slovakia&#39s pro-market reforms under the tenure of Mikulas Dzurinda (1998-2006) were admired by the majority of economists who now praise the steps taken by Prague.

Yet in a country with the highest rates of people below the poverty line in the EU, the unpopularity of reforms was widespread, and led to the election of a left wing government that promised to soften its impact.

Further south, Hungary is undergoing austerity measures that have plunged the popularity of the governing socialists and their liberal allies. Whereas few politicians in the country dare to verbally challenge the welfare state, drastic reforms at the hands of the socialists themselves took place during the late 1990s.

Hungarians have reacted with protests and riots against implementation of the reforms by a government accused of lying to the electorate on the state of the budget. Musil, who expects tensions to rise in Czech lands, doubts they will match those felt in Hungary.

"There is a difference in mentality; Hungarians are more radical and temperamental, whereas Czechs are cautious, avoid conflict and seek compromise, perhaps too much," he told IPS. "In a moment of real clashes I believe the government would retreat."