Prepared by Biswajit Banerjee.
Typically, the transfers from the SFA account are recorded as revenues of the state budget, while transfers from the NPF and the associated expenditures are excluded. This practice has been followed in Table 4 for the operations of the central government. However, in the presentation of the consolidated general government accounts, quasi-fiscal spending from the NPF is included as expenditures, and the transfers from the SFA and NPF are treated as financing.
The mandatory public health insurance system is mainly financed by payroll-based contributions (4.5 percent for employees and 9 percent for employers), which cover about two-thirds of public expenditure on health care. These contributions are channeled through the state health fund to the 11 public health insurance companies.
The total fiscal cost of the floods is estimated at CZK 34 billion. Of this, CZK 21 billion (1¼ percent of GDP) was borne in 1997, and CZK 13 billion (0.7 percent of projected GDP) will carry over into 1998. The bulk of the fiscal cost will be felt through lower revenues. The negative impact on revenues is estimated at CZK 12 billion in 1997 and CZK 9 billion in 1998. On the expenditure side, as of end-October, the government had decided to release CZK 13 billion in relief and reconstruction expenditure (cost of cleaning up, payment of social security benefits to affected families, repairing damage to transportation infrastructure, renovation of electricity networks, etc.), of which CZK 9 billion was spent in 1997. The flood-related expenditure will be financed almost entirely out of extrabudgetary resources as follows: CZK 5 billion transferred by the NPF from the proceeds of small-scale privatization, CZK 5 billion raised through the issuance of flood bonds, CZK 0.9 billion released by the SFA account, CZK 1.5 billion from the Czech Land Fund, CZK 0.3 billion of relief collections by the Fund of Environmental Protection, and CZK 0.2 billion direct expenditure of the state budget.
Unless Departments can reduce staffing, this will imply a freeze of nominal wages of civil servants. Judiciary personnel have been exempted however.
Of which, about CZK 6 billion will be in lower pensions, CZK 3 billion in lower family benefits, and CZK 1 billion in lower unemployment benefits.
The major cutbacks are in heating subsidies (to only CZK 0.2 billion from CZK 4.5 billion in 1997, made possible by further increases in administered prices), and the subsidy for property detriment (to CZK 1.8 billion from CZK 4.5 billion). Cuts in these subsidies would be partly offset by higher subsidies to agriculture (to CZK 10.7 billion from CZK 7.9 billion in 1997).
Hence, local authorities usually prepare their budget around the beginning of the calendar year, after the state budget has been approved by Parliament. The version of the local authorities’ budget that is included with the state budget reflects the outcome that is considered desirable by the Ministry of Finance.
Profits tax collection in any year is a function of profitability in both the current year and previous year. Enterprises make their final settlement around midyear when the audited accounts of the previous year are ready. They are also liable to make tax payments in the course of the year on the basis of expected profits, but they have the leeway to negotiate lower payments if there are clear signs that developments in the financial position are worse than earlier envisaged.
The ratio of pension payments to GDP in the Czech Republic is higher than in Canada (5.5 percent), the United States (7.1 percent), about the same as in the United Kingdom (9.2 percent) and Hungary (9.9 percent), and lower than in Poland (12.4 percent), France (12.7 percent), Germany (13 percent), and Austria (14.5 percent). Pensions are currently not subject to any tax in the Czech Republic.
Employers pay 19.5 percent (20.4 percent previously), and employees pay 6.5 percent (6.8 percent previously). Self-employed persons are required to pay 26 percent. Besides pension insurance, both employers and employees are required to pay sick-leave insurance and unemployment insurance as part of social security contributions. Social security contributions in the aggregate amount to 34 percent of the payroll, with employees contributing 8 percent and employers 26 percent.
Since 1996, a gradual increase in the retirement age has been introduced: two months for men and four months for women per year of the law, effective to 2007, when the retirement age will be 62 years for men and 57-61 years for women (according to the number of children reared).
The assumptions are as follows: (i) nominal wage growth of 11.5 percent in 2000 and declining by 0.5 percentage point per year to reach 4 percent in 2020; (ii) inflation at 6 percent in 2000 and falling to 4.4 percent in 2005, 3.4 percent in 2010, and 2 percent in 2020; and (iii) unemployment rate of 4.65 percent in 2000 and rising to 5.8 percent in 2005, 6.5 percent in 2010 and remaining at this level thereafter.
It is assumed that the return on investment would be 10 percent in 2000, 9.3 percent in 2005, 8.3 percent in 2010, and 7 percent in 2020. In theory, the same outcome could also be achieved through a single injection of capital into the pension system of CZK 400 billion.