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The following OECD assessment and recommendations summarise chapter 3 of the Economic Survey of the Czech Republic published on 6 April 2010.
More can be done to eliminate rigidities in product and labour markets
The Czech Republic has recently made substantial progress in reducing start up costs for both new companies and sole proprietors and simplifying a wide range of basic legal procedures, from property registration to insolvency. However, more can be done to streamline product market regulation. In particular, although start up procedures have become much faster, the costs remain comparatively high, owing largely to the relatively high level of minimum capital requirements for new companies. The next government should consider lowering these amounts, while examining other aspects of the entry process to identify factors contributing to excessive fees.
There are competition issues to be addressed in specific product markets. In electricity, gas and telecommunications, the evidence points to the need for continued vigilance against possible exploitation of market power by dominant players. In food retailing, the threat to competition comes from the Act on the Abuse of Significant Market Power in the Sale of Agricultural and Food Products adopted in 2009. Though ostensibly aimed at curbing the “buyer power” of supermarket chains vis à vis small agricultural producers, the act is likely to create legal confusion, distort competition and raise prices for consumers. Moreover, it may even have the perverse effect of deterring supermarkets from contracting with the small suppliers the act is meant to help. The act should be repealed.
As noted above, the labour market proved more flexible in the downturn than many had anticipated. However, a number of indicators, including persistent long term unemployment and the widespread use of phoney self employment to evade labour regulations, point to continuing rigidities arising from the Labour Code and other regulations. At a minimum, notice period and severance pay arrangements ought to be linked to the length of service. The Code’s provisions concerning fixed term and other non standard work contracts could also be liberalised. Housing market policies that create barriers to labour mobility should also be reconsidered.
Labour-market regulation, 2008
Note: The OECD indicators of employment protection are synthetic indicators of the strictness of regulation on dismissals and the use of temporary contracts. For more information and full methodology, see www.oecd.org/employment/protection.
Source: OECD, Earnings and Indicators of Employment Protection Databases.
Tax compliance and administration can be simpler and cheaper
Tax reform would be incomplete if it did not address administration and compliance costs. There is considerable scope here for changes to benefit both taxpayers and the state. Since the complexity of the tax system arises chiefly from exceptions and exclusions in tax legislation, a systematic accounting of tax expenditures would provide a basis on which to serve both simplification and equity goals while pursuing tax reform and fiscal consolidation. The planned integration of collections into a single agency should lead to palpable savings for taxpayers and the budget. The gains from doing so will be all the greater if the integration and streamlining of tax administration is accompanied by greater harmonisation and simplification of tax bases and definitions. The definitions and tax bases for the personal income tax and social security contributions should be further harmonised and simplified. Plans to integrate the collection of taxes, customs and social security contributions should be swiftly implemented.
Regulatory policies need to be implemented more effectively on a whole-of-government basis
The government has adopted a range of regulatory reform policies in an effort to reduce the burden of regulation on businesses and households. Initiatives such as the drive to reduce administrative burdens using the Dutch Standard Cost Model and the introduction of regulatory impact analysis (RIA) are welcome. The Czech framework for RIA compares favourably with those of other OECD members, and many dimensions of regulatory reform are increasingly supported by a range of e government initiatives now being introduced. However, implementation of regulatory reform – and of RIA, in particular – has been uneven. While a number of specific steps can be taken to strengthen the application of these, the main problem lies in failure of many line ministries to implement the reforms. The vesting of responsibility for regulatory reform with a pair of line ministries is part of the problem: they are not well positioned to bring other ministries into line when non compliance issues arise. The government should consider establishing a strong institution at the centre of government to drive regulatory reform across the whole of the public administration.
Further steps are needed to curb corruption
Evaluations of the business environment continue to highlight corruption as a major problem. While there has been some evidence of progress in recent years, not least in conjunction with increasing reliance on e government methods, more needs to be done, particularly to address corruption in public procurement. The next government should pursue further steps to enhance the transparency and competitiveness of public procurement procedures, while strengthening the mechanisms that allow bidders to challenge questionable procurement practices in a timely and efficient manner. The authorities should also institute liability of legal persons and explore ways to strengthen whistleblower protection.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations
The complete edition of the Economic Survey of the Czech Republic is available from:
For further information please contact the Czech Republic Desk at the OECD Economics Department at email@example.com.
The OECD Secretariat's report was prepared by William Tompson, Zuzana Šmídová, Laura Vartia, Zdeněk Hrdlička and David Prušvic under the supervision of Andreas Wörgötter. Research assistance was provided by Margaret Morgan.