Pensions in Czech Republic should increase by 5.6% on average in 2021

Pensions should increase by CZK801/month on average in 2021, which makes a 5.6% hike, labour minister Jana Malacova told the Czech state TV channel. She argued that pension growth had lagged behind the recent increase in incomes, which is why the government should do more to maintain the living standards of retired people. She added that since 2013, a third of pensioners are at risk of falling into poverty, so it was her task as labour minister to protect the government’s social policies. We remind that the government is already going to increase pensions by a rate higher than the lone the law envisages, by about 6.8% as of 2020. However, Malacova said that it wouldn’t be enough and that pensions need to reach CZK15,000/month, which is why she is pushing for hikes bigger than legally prescribed. If the pension law’s provisions were applied as usual, pensions would increase by about 5.4% as of 2020, according to preliminary calculations.

Regarding how the government would pay for this measure, Malacova once again brought up the possibility for new revenue sources, such as the introduction of the so-called digital tax (i.e. a tax on online advertising revenue), higher excise taxes (which the finance ministry proposed on Friday) and a tax on banks’ financial assets. Regarding a bank tax, Malacova once again pointed out that even conservative projections suggested it would secure an additional CZK11bn a year, which would be enough to cover the pension hike. Once again, Malacova didn’t elaborate her idea, so it remains unclear which bank assets exactly may be taxed. We also remind that there are different ideas coming from the CSSD at the moment, as foreign minister Tomas Petricek suggested that instead of a bank asset tax, the government could simply increase the corporate income tax rate for financial institutions.

We continue to point out that there is no support from ANO, the senior cabinet partner, for a bank tax in any form. While PM Andrej Babis has supported higher excise taxes and the so-called digital tax (but there has been no development so far), he has spoken very firmly against any higher sector taxes, especially on the financial sector. The issue has been discussed between ANO and the CSSD, with no progress reached. If push comes to shove, however, we expect ANO to remain resistant to a bank tax, regardless of the CSSD’s insistence. The KSCM, which provides absolute majority to the ANO-CSSD government, also supports some kind of a bank tax, but it doesn’t really have a say about cabinet decisions. A bank tax is not part of the KSCM’s programme, so we doubt the party will insist so much on this tax. At this point, we doubt that the government will go beyond the already announced excise tax hike, and will probably add some form of taxation on online advertising, but not a lot more.

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