The proposed program statement of the incoming government of Andrej Babiš rightly raises concerns about the Czech Republic’s future foreign policy direction, media freedom and the development of civil society. But the main government party ANO has to admit one thing: It is going into government much better prepared than the way the main government party ODS went into government in 2021.
Then it ended randomly and hastily summed up ideas in the program statement, from reducing social security by two percentage points to guaranteeing 130 percent of the average salary for all teaching staff to, for example, valorizing the discount for the taxpayer. None of this ever happened.
The highlight was the proud promise to maintain the existing pension valorization mechanism, only to then drastically reduce it. The ill-conceived collection of random promises troubled the ministers of the outgoing government a lot, until finally Prime Minister Petr Fiala decided to simply issue a new government statement. And he didn’t even do it in the end.
Babiš, on the other hand, conscientiously prepared for his return for four years. His right-hand man, Karel Havlíček, created a very solid economic strategy, from which the proposed program statement is based in many parts.
Nevertheless, it is not a plan that will benefit the Czech Republic in this form. It is to Babiš’s credit that, unlike Fiala, he understands where the biggest economic problems of today’s Czech Republic are. Instead of correct solutions, however, he practically always proposes a general sprinkling of money, which he does not have and will not have in the state budget. Here are the biggest mistakes.
CEZ’s unnecessary obsession
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One of Babiš’s most expensive promises is the purchase of shares in the semi-state energy giant ČEZ. The government composition claims that it will not cost the state budget anything and the company itself will buy out the minority shareholders for about 250 billion. Even if this operation succeeds, the established money channel in the form of a meaty dividend will certainly stop flowing into the state budget, the last time it was some 17 billion for the state, that is already a large income for the state coffers.
But most importantly: What will it all be for? Yes, CEZ will be easier for politicians to control if it is 100% state-owned. However, this is more of a cause for concern, CEZ has been in good shape so far precisely because the minorities exercised effective control over state interests. Nationalization will certainly not make electricity cheaper. That is a complete mistake. It can probably help the easier construction of nuclear blocks, but the state can already solve this by guaranteeing the construction of these very expensive resources. No, the nationalization of CEZ will not benefit anything.
If the state wants cheaper electricity, it can change the regulatory part of the price (ANO is already planning to do this), move the VAT and, above all, lobby at the European level for the modification of common rules, as suggested by Mario Draghi’s report, admired by all, but ultimately unheeded.
We will command the wind, old age
The proposal to cap the retirement age at 65 even in the 30s is extremely dangerous. Babiš understood well how people fear the vision of work even at the age of 67, but he mistakenly decided to promise them the economically impossible. His U-turns on pensions have been one big mess over the years: When he first sat in government, he had no problem with the formula then in force, according to which the retirement age was raised relatively sharply by a few months a year. The height of the absurdity was that when the ČSSD and KDU-ČSL lobbied for the establishment of a ceiling of 65 years, Babiš was against it for a long time and defended the previous system of the ODS, in which, together with the extension of the life expectancy, the retirement age is constantly shifted a little.
Now, further modest increases after 2030 have become the subject of a bitter political battle. And it must be said that the outgoing government, which was absolutely unable to explain the reform, is also to blame. If Babiš permanently enforces 65 years as the maximum ceiling in the Czech Republic, governments in the 1930s will be missing tens of billions more in the pension system every year, politicians will not be able to finance the three-million army of pensioners, and pensions will be beggars.
If Babiš, who in 2016 pleaded with the government not to introduce any kind of ceiling, was taking office, he would undoubtedly now bet everything on tax support for working pensioners, health prevention so that we are healthy even in old age, and the development of social services. Instead of promising the impossible, Babiš should rather listen to the experts from the Minister of Health project, who are trying to extend the time spent in good health in the Czech Republic by five years. This is the right way to combine work, pension and state budget options even in old age.
Businesses will kick in depreciation, not the rate
Babiš’s team is making a big mistake if it promises lower corporate taxes in the current conditions. Yes, it is clear what the promise of reducing the 21 percent rate to 19 percent is aimed at. The allegedly pro-business government of Petr Fiala, which thought it would never raise taxes, in the consolidation package without any discussion, slapped companies with a two percentage point higher rate.
And it is understandable that Babiš and Havlíček want to compensate them. But there are better ways for the state budget to give up about twenty billion in revenue. Instead of reducing the rate, the incoming government should give the green light to really massive corporate write-offs, ideally for productive things. Although the program statement promises depreciation, it is simply impossible for the state to grant companies a lower rate and significantly faster depreciation. We don’t have that.
Therefore, if it is to be chosen, it is better to bet on depreciation, which will benefit innovative companies more. A good procedure is suggested by economists, for example, in the Chytrejsidane.cz project.
For emissions via Brussels
And finally, for the last time, something that is now increasing pressure on the Czechs and was one of the main topics of the election campaign: emission allowances. Although it is a very unpopular thing that will make fuel and household operations more expensive, and Babiš quite understandably bet on it in the campaign, now the elections are over. The sentence from the program statement that the cabinet will “reject emission allowances, the so-called ETS2”, is the biggest nonsense that can be written about ETS2 now.
The Czech Republic has already committed itself to the introduction of these allowances (first in Brussels the entire Green Deal was approved by Prime Minister Andrej Babiš, then the specific way of introducing ETS2 was approved by Prime Minister Petr Fiala). If we don’t implement them, we will pay hefty fines. Well, you say, it’s worth it. But then we won’t even get to the tens of billions in the new Social Climate Fund, where the revenues from ETS2 will go. Well, you say to yourself, even that is worth it. But then the reality will arise, when the price of fuel will rise slightly in the neighboring countries and the Czech prices will adjust accordingly. However, while the neighboring states will get the revenue from the price increase back through the Social Climate Fund, the Czech Republic will just leave a higher margin to the pumpers. This makes no sense.
It is politically quite understandable that any incoming government will put some “gifts” in the program statement, even if they are perhaps not the best spent public money. So fares for students and seniors will be subsidized again, or kindergarten fees will be returned to young families. But these are promises worth billions, and even though we would have considered it a huge amount of money just a few years ago, today it is only a small amount in the state budget with deficits of hundreds of billions. However, it is all the more important that the government does not make mistakes in those big things worth tens or hundreds of billions. And the incoming cabinet of Andrej Babiš is unfortunately preparing for several such.
