The newly introduced consolidation package, which is supposed to slow down the state’s indebtedness, will significantly affect employees and entrepreneurs. If it is approved, it will affect them by limiting tax reliefs and benefits, but also, for example, by levying health insurance or higher income taxation. On Friday, Mazars tax expert Gabriely Ivanco will answer how the labor market will change with these cuts. Ask now.
In recent years, the Czech Republic has run deficits of one hundred billion every year. Next year, the government plans to save 62.4 billion crowns on expenses and to obtain 31.7 billion crowns from new revenues, i.e. to reduce the deficit by 94.1 billion crowns. In the next year, it should be 53.4 billion crowns.
At the same time, the cabinet is counting on cutting subsidies, reducing the amount for state operations and salaries. The tax on companies, on real estate, on gambling, on people with a higher income, and on tobacco and alcohol should increase.
When it comes to the effectiveness of cuts in the labor market, tax expert Ivanco is reticent. According to her, some of them can rather demotivate many employees and self-employed persons.
As for employees, he mentions in this context the reduction of the limit for applying the tax rate of 23 percent from 48 times the average wage to 36 times. This, according to Ivanco, could cause people to stop trying to earn extra income. “And so it could happen that the measures taken would become rather counterproductive,” he points out.
An increase in the minimum assessment base for calculating social security premiums for the self-employed can work in a similar way. “For those persons whose earnings are at such a level that this minimum assessment basis applies to them, this increase can be another impetus for them to end their self-employment,” adds the expert.
According to Ivanco, the re-introduction of the employee’s contribution to health insurance may have a social impact on a number of households. “The levy in question will apply to all employees subject to health insurance premiums, which means that it will also affect those low-income groups that do not incur any tax liability when using tax deductions and discounts, and will thus lead to a reduction in their disposable income,” he continues.
The abolition of the exemption of various employee benefits, and in particular the so-called above-limit meal allowances (a meal allowance, the full amount of which the employer cannot deduct from taxes because it exceeds the legal deduction limit – editor’s note), especially if there is no increase in the meal allowance flat-rate at the same time, can be problematic. “Even now, the amount of the tax-advantaged cash allowance for meals provided by the employer is far from sufficiently covering the costs that the employee must spend on meals provided through other entities,” believes Ivanco.
In the area of abolished tax reliefs, taxpayers will probably be most affected by the reduction in tax relief for spouses with low incomes and school fees. “Although it is argued that, in particular, the cancellation of kindergarten fees should be compensated by the state by increasing the capacity of preschool facilities, it is quite obvious that this capacity increase will take some time,” says the tax expert.
According to her, if it does not happen soon enough, taxpayers may find themselves in a situation where, due to the need to care for children, they will not be able to afford to participate sufficiently in the work process, and at the same time they will lose the possibility of tax discounts.
Photo: Mazars
“This risk also exists for those taxpayers with sufficiently low incomes, whose average monthly income is only slightly above the minimum wage, but a taxpayer’s discount alone is not enough to fully eliminate their tax liability,” adds the expert.
In practice, how will the cuts affect employees and the self-employed? And to what extent will the measures from the austerity package affect the earnings of Czech households? Tax expert Ivanco will answer this and other readers’ questions on Friday, May 19, from 10 a.m. However, you can ask your questions now.
