The Czechs realise with horror: "We are poor!"

12. 3. 2017 / Jan Čulík

While the Czechs as members of a ten million nation know very well that their international influence would be greatly diminished if the EU ceased to exist, their dissatisfaction of what they increasingly see as a position of second rate citizens within the EU could in future become a deeply destabilising factor.

Paradoxically it was the pro-European Social Democratic Prime Minister Bohuslav Sobotka who seems to have unwittingly drawn the attention of the Czechs to the fact that almost 30 years after the fall of communism, their salaries and wages still remain extremely low. Over the past couple of weeks, Sobotka has inadvertently created a strong wave of public dissatisfaction with what the Czechs see as their poverty within the EU. Many of them blame the European Union for this.

Sobotka's Czech Social Democrats are currently part of a ruling coalition with the right-of-centre “Ano” “(“Yes”) party, which is run by a Berlusconi-like oligarch Andrej Babiš, Czech Deputy PM and Finance Secretary, who owns most of the Czech food industry and also controls some important Czech media outlets. Remarkably, Babiš's party is now supported by more than 30 per cent of the Czech voters, while the Social Democrats are supported only by 20 per cent. It is quite likely that the Social Democrats will be the losers in the forthcoming general election, which is due to take place in October 2017.

In an attempt to improve the electoral chances of the Social Democrats, the Czech PM Sobotka has decided to propose to re-introduce progressive taxation in the Czech Republic. Like in several other East European countries, progressive taxation was replaced by flat tax in the Czech Republic in 2008.

Sobotka has pointed out that only 9 per cent of Czech employees earn more than 50 000 crowns (USD 1965) per month before tax. He has proposed to raise the income tax for those 9 per cent and to lower the income tax for the remaining 91 per cent.

His proposal has immediately become the target of sharp criticism in the media. Cynics might say that this is because most of the media pundits belong to the “rich” 9 per cent of the Czech employees and would thus be adversely affected by the income tax rise.

The problem, however is, that due to fairly high levels of other deductions, the gross income of 50 000 crowns per month is actually only 36 000 crowns (USD 1415) per month net, as was pointed out by Petr Honzejk, a commentator on the Prague economic newspaper Hospodářské noviny. Which is not a particularly astronomical pay. It became the subject of public attention that most of the so called “rich” people in the Czech Republic earn only around 1400 US dollars per month net.

But what was particularly alarming for the Czechs was the realisation that the overwhelming majority of the Czech employees earn an absolute minimum. As the graph below shows, in the Czech Republic, a country with 3,7 million employees, 630 000 employees (17 per cent) earn less than 15 000 crowns (USD 590) per month, 800 000 (22 per cent) of them earn less than 20 000 crowns (USD 786) per month and 1,1 million (30 per cent) earn less than 25 000 crowns (USD 982) per month. All these sums are before tax:

 

Mzdová realita: 91 % lidí má v naší zemi mzdu do 50 tisíc. Všem těmto lidem navrhujeme snížit daně! #spravedlivedane pic.twitter.com/3S3t3xCOIr

— Bohuslav Sobotka (@SlavekSobotka) February 22, 2017

The sudden realisation, as a result of public debate, that only some 30 per cent of the Czech employees earn more than about 1000 USD per month before tax, was absolutely horrifying for most Czechs. As can be seen from Eurostat statistics, the Czech Republic belongs to the group of those EU countries which have minimal labour costs and hence the smallest wages.

While some local goods and services are cheaper than their equivalents in the West, most industrial products are of the same price as in the West.

But this is not what was promised to the Czech population in the heady, optimistic period in the early 1990s, immediately after the fall of communism. The Czechs were told that they would quickly enter the land of milk and honey and would become just as affluent as the neighbouring (West) Germans, with whom they constantly compare themselves.

The realisation of “how poor we all are” seems all the more frustrating to the Czechs since an opinion poll has shown recently that many of them are not particularly interested in democracy, what they are interested in is affluence. (According to a CVVM opinion poll conducted in February 2016, only 50 per cent of Czech adults think that democracy is the best method of government.)

The public debate on the topic of the general poverty of the Czechs, which followed in the Czech media and on the social networks after Sobotka's announcement made the Czechs realise that, as they see it, they are second class citizens in the European Union and will always remain so.

According to Eurostat, the Czech Republic has the smallest levels of people who are threatened by poverty, i.e. 9,5 per cent and along with Slovakia, it has the smallest inequality of income distribution of all the member states of the European Union (although it has one of the largest gender pay gap in Europe, 22 per cent). But many critics in the Czech Republic reject these statistics, pointing out that these data are calculated on the basis of a median income, weighted according to local “consumption patterns”. But the Czech median income is, in their view, very low in the Czech Republic and the local “consumption patterns” are questionable:

As one commentator put it:

“In Germany, the average age of a private car is about 8-9 years. In the Czech Republic, it is 15 years and growing. My German colleague who does the same type of work as me, can buy a new car every ten years and after ten years, he can sell it as a second hand car. I can afford to buy, once every ten years, a second hand car for half the German price and will have to pray that it does not break down and that I will be able to repair it if it does break down. So these are the typical “consumption patterns” on which these statistical assessments are based: a German can buy a new car every ten years and I can buy a second hand car every ten years”.

What are the reasons for this state of affairs? Many people complain that the Czech Republic is a “paradise” for the multinational companies who pay almost no taxes in the country and repatriate USD 14 – 17 billion of profits from the Czech Republic annually. “Half of that amount would solve most of the social problems in the Czech Republic.” Repatriation of profits abroad is possible, critics say, because successive Czech governments have been in cahoots with influential entrepreneurs and multinational companies at the expense of ordinary employees. Others point to the fact that trade unions are extremely weak in the Czech Republic and that the Czechs almost never strike demanding an increase in pay. Yet others argue that since the fall of communism in 1989, successive Czech governments never tried to push through an economic policy based on industrial innovation and have turned the country into a giant assembly hall of products made abroad, mostly in Germany. The resulting low levels of pay are a source of wholesale frustration in the country and a potentially major destabilising factor.

There is a serious danger that with advancing automation and the growing impact of artificial intelligence on employment and on industrial processes, income levels in the Czech Republic will drop even further. At the moment, the country has no strategy how to tackle this threatening problem.

Needless to say, in the other post-communist EU member states, this situation is even worse.

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