Tuesday, August 21, 2007

Czech PM wins fight for tax cut package

From the Financial Times today:

Czech PM wins fight for tax cut package

By Katka Krosnar in Prague

Published: August 22 2007 02:14 | Last updated: August 22 2007 02:14

The Czech parliament on Tuesday approved a public finance reform package that would cut corporate tax to 21 per cent next year.

Under the reforms proposed by the centre-right coalition government of Mirek Topolanek, prime minister, the corporate income tax rate will fall from 24 per cent to 21 per cent next year, then by a further 1 percentage point in 2009 and 2010.

A simplified individual income tax rate of 15 per cent is to be introduced next year, falling to 12.5 per cent in 2009.

The backing for the reform package, albeit by a slim two-vote majority, was a big victory for Mr Topolanek who faced a backlash by rebel MPs from his own Civic Democrats party led by Vlastimil Tlusty, the former finance minister. Mr Tlusty had threatened to vote against the bill, arguing it would make many families worse off.

Mr Topolanek had earlier warned that the ruling coalition would collapse if the package was rejected and the government would be unable to prepare a budget with a deficit of less than 3 per cent of GDP, a key criterion for euro adoption. But some analysts said on Tuesday the reforms did not go far enough to rein in public expenditure as the Czech Republic faces a 3.9 per cent public finance deficit this year.

Under the reforms, social benefits including sick pay, long-term unemployment benefit, one-off new baby payments and child benefit would be cut, while the VAT rate for food and medicine would be raised from 5 per cent to 9 per cent. Fees for consulting doctors would also be introduced.

“The vast majority of steps in this bill are positive and will not worsen the situation for people,” Mr Topolanek insisted on Tuesday.

With GDP growth of 6.4 per cent last year and the finance ministry forecasting 5.8 per cent this year, analysts say now is the time to implement wider-reaching spending cuts.

“These reforms will not dramatically improve the public deficit. There is no reason to cut taxes right now and the government is not tackling the key problem of huge social spending,” said Vadimir Pikora, an analyst with Next Finance.

Ales Michl, an analyst at Raiffeissenbank, said: “These watery reforms lack vision and ambition and do nothing to solve the deficit. The government should be seriously cutting public expenditure particularly in state orders, the health sector and social benefits.”

Pavel Sobisek, an economist at HVB, said that without the reforms euro adoption would be impossible in 2012.

The bill must now be approved by the Senate, where the ruling parties have a majority, and then by President Vaclav Klaus.

Sunday, August 19, 2007

Looking at my last post about labour shortages in the Czech Republic you may well wonder what all this activity reported in the Prague Post is in fact all about:

Police raids prepare for Schengen

Illegal immigrants targeted in nationwide crackdown

By Hilda Hoy
Staff Writer, The Prague Post
July 4th, 2007

With the long-awaited entrance into Europe’s border-free Schengen zone fast approaching, Czech law enforcement is keenly following through on promises to beef up controls against illegal immigration.

That means increased police raids against illegal immigrants in Prague and beyond, said Kateřina Jirgesová, spokeswoman for the Foreigners’ and Border Police. “With the upcoming entrance into Schengen, more intensive illegal activities … related to illegal entrance or stay here can be expected,” she said. “The goal of these [police raids] is to eliminate such activities.” On June 21 and 22, some 500 officers from the Foreigners’ and Border Police carried out planned raids in five urban areas around Bohemia. Focusing on areas where migrants might congregate or work — such as marketplaces, train and bus stations, construction sites and accommodation hostels for construction workers — the officers checked nearly 4,600 foreigners, Jirgesová said. Out of those checked, 48 were taken into custody. Eleven were ordered expelled from the country. Police filed charges for 252 infractions, for everything from illegal stay to lapsed health insurance to failure to carry proper identity documents. A week earlier, the Foreigners’ and Border Police had also participated in a trans-border, cooperative police action against illegal immigration, said Interior Ministry spokesman Petr Vorlíček.

Law enforcement across eight countries — the Czech Republic, Slovakia, Germany, Austria, Hungary, Slovenia, Switzerland, Italy and France — collaborated to check immigrants in their respective countries and exchanged information and strategies. “It was one of the preparations for Schengen cooperation, because it is going to be necessary to work closely like that,” Vorlíček said. “These initiatives are going to be happening regularly, and their importance will increase after border controls are canceled.” Last year, 11,488 individuals entered or stayed in the Czech Republic illegally, Jirgesová said.

The Czech Republic is slated to join Schengen at the end of this year along with the nine other Central European and Baltic states that joined the European Union in 2004. However, admission is still contingent upon gaining the European Commission’s final approval for preparations made in the areas of border controls, transnational cooperation and visa and immigration, particularly for countries such as Slovakia that would be on the outer edge of the Schengen zone. The Czech Republic is coming along very well with those preparations, said Franco Frattini, European commissioner for justice, freedom and security, during a visit to Prague June 14.

But along with such initiatives should come increased training for police officers to understand the situation of immigrants, both legal and illegal, who have made the country their new home, said Viktor Rajčinec, chairman of the Ukrainian Initiative in Prague. Ukrainians make up approximately 70 percent of the illegal immigrant population here, the Czech News Agency (ČTK) reported. Officers should receive more training on the specific issues different immigrant communities face, and also learn more about the complex bureaucracy and paperwork behind immigration. “Sometimes the police don’t have a clue what’s going on,” he said. Rajčinec also hopes the Foreigners’ and Border Police will accompany its increased pressure on illegal immigration by making more attempts to improve its services to the legal immigrant community. “It would be great if the police worked in a more flexible way, and that there would be better conditions [at the Foreigners’ Police] so that people don’t have to jostle and push there. This would really help everyone,” he said.

Laying down the law

On the other side of the equation, lawmakers have also been taking steps to ensure that the Czech Republic joins Schengen without a hitch. On June 25, President Václav Klaus signed a bill into law that imposes tougher sentences against anyone involved in human smuggling. Those convicted could face up to 15 years in prison, ČTK reported. Preventing illegal immigration through legal channels will be an increasing priority, said Interior Ministry spokesman Vorlíček. “A lot of legislative changes have already been introduced,” he said, in particular laws regarding air and land border control and laws regarding the residency of foreigners.

A Growing Number of Czech Companies Have Problems Finding Employees

Three quarters of Czech companies have problems finding employees, Hospodarske noviny reported on Monday. The biggest Czech car-manufacturer Skoda auto, for example, allegedly lacks 500 employees. The shortage is most prominent in the industrial sector, where 88 percent of companies are currently looking for new employees. Lorry drivers, shop assistant and IT experts are also in short supply. One third of Czech companies rely on foreigners and some have started employing pensioners and women on maternity leave.

According to data released by the Czech Ministry of Labour and Social Affairs there are more than 200,000 foreign workers, mostly manual labourers, currently employed in the Czech Republic. They come mainly from Slovakia, Ukraine and Poland. The ministry plans to introduce a so-called green card system to facilitate the employment of qualified workers from abroad.

Czech Republic Labour shortage once again on the agenda

Rob Cameron of Radio Praha back in May:

Labour shortage once again on agenda as government looks abroad

The financial daily Hospodarske noviny carries a long article on Tuesday about the problem of labour shortages in the Czech Republic, the latest coverage of a much-discussed issue in this country. The estimates are gloomy, and the government's attempts to counter the problem don't seem to be bearing much fruit. But is the situation really that bad, and will fresh attempts to attract foreign employees work?

Listen to the doom-mongers and you'd be forgiven for thinking the Czech economy is on the verge of grinding to a halt because of a shortage of labour. The Labour and Social Affairs Ministry estimates there are currently some 50,000 unfilled vacancies for skilled workers in the Czech Republic, and predicts that in 25 years, the figure will have risen to 400,000.

Hospodarske noviny quotes a study by a Dutch research agency called SEO, which makes the startling claim that by 2050, the Czech economy will be lacking some 1.5 million workers. But how accurate are these predictions? Daniel Munich is a labour market specialist for the research institute CERGE:

"It's very difficult to disentangle actual demand from existing statistics, because the statistics are strongly dependent on the willingness of institutions and companies to report to public institutions. So these estimates are rather questionable, but based on various indications, there really is a shortage of skilled labour in the Czech Republic and something should be done."

The biggest problem seems to be in the engineering sector, where mechanics, welders and machine repairers are in great demand. There is also a much-publicised need for doctors, architects and civil engineers. So what explains the shortages? Daniel Munich again:

"First, the Czech economy is growing at a relatively high rate. New companies are coming from abroad, local successful companies are growing, and at the same time we inherited from the communist past an extraordinary low share of highly-skilled population, given the low supply of tertiary education. So taken together, this creates our current situation."

Previous attempts to attract foreign labour to fill the shortfall appear to have achieved little. The previous Social Democrat-led administration launched a scheme to attract qualified workers from countries such as Bulgaria and Croatia. That scheme, says Hospodarske noviny, seems to have been an unqualified failure. Of the 600 people who took part, just 30 were "new" arrivals. The remainder were people already living here who saw the scheme as a way of speeding up the process of gaining permanent residence.

Now the centre-right cabinet wants to loosen up the residence and work permit regulations even further in a bid to attract more skilled workers from abroad. Daniel Munich says that can only be a good thing:

"The system, as it was and still is here, is quite complicated and quite unfriendly to these highly-skilled people who have many other options with regard to work. So if we don't change this system, we would be losing this valuable asset of human capital, which was financed by somebody else - in this case by other countries, and it's a smart government which makes it easier."
So putting a friendly face on the process of applying for a residence permit - issued by the dreaded foreigners' police - will, says Daniel Munich certainly help. But some analysts believe the Czech Republic has a bigger problem. They point out there is little motivation for skilled labourers to settle here, when they could choose other countries further west, where wages are higher and the bureaucracy more friendly to foreigners.

Immigration only short-term solution to labour shortage

Commentator Lubos Palata wrote in Lidove Noviny Thursday that the Czech Republic's shortage of qualified workers can be made up for by "imports from abroad" in the short term only. He is evidently write, since basically the supplies of such immigrants will soon run out (and here). He would also do well to consider that if you want a domestic labour supply you need children, so doing something about the low fertility problem, and more to help working mums, should definitely be a number one priority.

Immigration only short-term solution to labour shortage

By ČTK / Published 17 August 2007
Prague, Aug 16 (CTK) - The Czech Republic's shortage of qualified workers can be made up for by "imports from abroad" in the short term only, commentator Lubos Palata writes in Lidove noviny Thursday.

He is commenting on politicians' effort to fill the growing number of empty jobs with immigrants and guest workers.

He says that if the country remained open to the import of a cheap workforce from the East, it would become even more attractive for foreign investors, and it could become Europe's largest assembly hall of cars, computers, LDD displays and many other things in a few years.

"The combination of a person who works for the east European wage and central European infrastructure, complete with the EU market and Brussels-guaranteed investment certainties, is an irresistible attraction," Palata writes.

He writes that foreigners have brought many positive things to the Czech Lands throughout history. The truth is that almost all Czech towns were founded by German settlers, Palata writes

"But never has 'the import of a cheap workforce' from less developed countries been a long-term positive step," Palata writes.

He says that "the Czech workforce should not be cheap, but expensive, qualified and of good quality."

Palata writes that the import of foreign workforce may not result in the revival of the Czech Lands as an industrial power of central Europe but in the definitive liquidation of the heritage that has survived in the country since the times of the Austro-Hungarian monarchy, of which the Czech Lands were part.

He writes that the massive import of a cheap workforce from Ukraine or Moldova will further lower the already low motivation to develop a quality technical education.

"The cheap workforce that is imported en masse and with state support destroys the job market...Investors who build a plant here and then find out that no one will work for them at the assembly line for 15,000 crowns, should pack up and leave, and not import with state support Ukrainians who are ready to work even for the money offered," Palata writes.

He writes that the Czech Republic should be sufficiently self-conscious and say that the reputation of a country with a cheap workforce is no longer enough for it.

The country must follow a path that leads "via universities, research institutes, good-quality and effective work, able managers, and politicians, if not statesmen who think about the future," Palata writes.

The Czech Republic should not be a country where there is work for every "cheap foreigner," but a state where it will be an honour for a foreigner to get a job, Palata writes.

Czech Republic building output down 4.4 pct in June

From the Prague Monitor:

Building output down 4.4 pct in June in 1st fall this yr

Building output in the Czech Republic fell by 4.4 percent year-on-year in June after a thirteen-month growth, the Czech Statistical Office (CSU) announced Monday.

Against May, seasonally adjusted building output dropped 0.2 percent.

"The decrease in construction output in June was affected by - a high growth of construction output in June 2006, increasing shortage of skilled building workers and problems in the market of certain building materials," the CSU said.

Next Finance analyst Vladimir Pikora ascribes the fall in output in particular to the high comparative base from last year when many people tried to avoid potential VAT growth for construction work and took mortgage loans.

The unusually warm winter allowed boom in construction in months when construction work is usually at low levels, he said.

"Thus, building material producers and sellers have empty warehouses as for some goods, which slows down construction and makes it more complicated. Moreover, building companies say they lack qualified staff," Pikora added.

From a broader viewpoint, it can be seen that the sector fares well, he said.

Average growth rate in the last twelve month stands at 13 percent and in the first half of this year, the sector grew by 12.7 percent.

Problems linked with the preparation of projects and their financing also took their toll, the CSU said.

In the second quarter, building output rose by 3.7 percent year-on-year, average registered workforce fell by 1.7 percent and average monthly nominal wage rose by 7.8 percent.

Planning and building control authorities granted 16.5 percent less building permits and the approximate value of the permitted constructions was 14.4 percent lower.

In June, new construction, reconstruction and modernisation recorded a 4 percent decrease, of which civil engineering work fell by 9.8 percent and building construction grew by 0.1 percent.

Repair and maintenance fell by 19.5 percent and other work recorded a drop of 47.2 percent. Construction work abroad grew by 53.3 percent.

Contracted construction work carried out by construction enterprises with 20+ employees fell by 4.7 percent year-on-year at constant prices.

The number of employees in construction enterprises with 20+ employees dropped by 2.2 percent against June 2006. Average monthly nominal wage of employees increased by 3.4 percent year-on-year and reached Kc21,124 (the real wage rose by 0.9 percent).

Average hourly wage grew by 9 percent year-on-year and stood at Kc137. Labour productivity per hour worked grew by 2.7 percent.

Planning and building control authorities granted 9,560 building permits in June 2007 (of which 5,258 for new constructions and 4,302 for renewals and enhancements). The number of building permits granted fell by 21.5 percent year-on-year.

Approximate value of constructions permitted in June 2007 increased by 7.3 percent in comparison to June 2006 and reached Kc28.3bn. New construction is valued at Kc20.3bn (up by 18.4 percent), the CSU said.

Planning and building control authorities permitted the construction of 3,369 dwellings, which was 334 dwellings fewer (-9.0 percent) than in June 2006. Out of that, 2,895 dwellings will be obtained by new construction and 474 dwellings by renewals and enhancements. The approximate value of newly permitted dwellings in multi-dwelling buildings was Kc7.2bn.

According to Eurostat News Release, seasonally adjusted construction output in the EU27 grew by 1.9 percent yr/yr in May 2007.

Among the EU member states for which data were available, the highest increases were observed in Slovenia (+48.7 percent), Romania (+27.6 percent) and Poland (+16 percent).

The biggest decreases were recorded in Portugal (-4.9 percent) and Germany (-2.7 percent).