Czech MPs vote pension, excise tax hikes in 2020

The Chamber of Deputies, the lower chamber of parliament, supported the increase of pensions by 6.7% in 2020, as well as the hike in excise taxes on tobacco, alcohol, gambling and heating (the latter regards only local building heaters). The legislation passed with the votes of all MPs that support the government, namely those from ANO, the CSSD and the KSCM.

Opposition parties were very critical of the excise tax hikes, with arguments made that the tax hikes were proposed only to increase budget revenue and finance social spending, without taking heed of the possible negative effects (like higher illegal tobacco and alcohol sales, for instance).

Regarding the details of the legislation, there were no changes from the proposals that the cabinet has submitted to parliament. Pensions will increase by 6.7% on average, which translates to a CZK900 monthly hike. It is higher by about CZK200 than the increase that the pension law would normally allow, based on salary growth and inflation (with equal weights). It is the second year in a row that the government pushes through faster pension hikes than allowed by the law, in order to bring pensions faster to a higher level. We remind that the CSSD wants pensions to reach 50% of the average wage by the end of the government’s term in 2021, though a more realistic goal would be somewhere in the vicinity of 40-45% (currently pensions are just under 40% of the average wage). The pension hike will cost the budget CZK7.5bn in 2020.

As far as excise tax changes are concerned, they include a couple of provisions related to insurance (a change in how technical reserves are treated for tax purposes) and an extended exemption on capital gains tax, apart from excise tax hikes. Excise tax on alcohol should increase by 13%, while on tobacco products – by 10%, leading to an increase of prices by 7.8% (alcohol) and 6% (tobacco), respectively. The tax rate on gambling will increase from 23% to 25-30%, depending on activity. The total impact on budget revenue is projected to reach CZK7.7bn in 2020 and CZK9.2bn in 2021. The figure was heavily disputed in parliament, as opposition MPs argued that lower demand and illegal sales would not allow tax authorities collect that amount of money. The finance ministry evaluates the total fiscal impact at 0.2% of GDP in both 2020 and 2021, which suggests that the general government budget may remain at a surplus at least until 2021.

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