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The following is the Executive summary of the OECD assessment and recommendations, taken from the Economic Survey of the Czech Republic, published on 6 April 2010.
The Czech economy was severely affected by the global downturn, owing to its high degree of openness and integration in global production chains. The fiscal position was also hit hard, prompting a rapid shift in policy from stimulus to consolidation. The medium term challenges facing the country are principally concerned with creating conditions for rapid convergence with advanced OECD economies by restoring the sustainability of public finances and improving the business environment:
- Executing an ambitious medium term consolidation strategy. The government should outline a clear medium term plan to achieve a structural balance close to zero. Consolidation efforts will need to be underpinned by structural reforms and should aim at an appropriate balance between safeguarding the revenue base, exploiting the potential for efficiency savings in spending programmes and containing expenditure growth. This should form the cornerstone of a broader strategy to prepare the economy for entry into the euro area.
- Addressing risk diversification in healthcare and pensions. Further reforms in healthcare and pensions are needed to assure long run fiscal sustainability in the face of spending pressures generated by population ageing. There have been promising starts on both but more needs to be done, particularly to diversify the sources of retirement income.
The tax and benefit systems have both undergone significant reforms in recent years. While many of these changes are to be welcomed, some policy challenges remain:
- Shifting the tax burden onto less distorting taxes. More can be done to move towards greater reliance on indirect taxes, particularly consumption, environmental and property taxes, rather than direct taxes on labour and capital income.
- Better co ordination of tax and benefit policies. Undesirable interactions between tax and benefit systems sometimes arise because policies in the two domains are not well co ordinated. More systematic analysis of such interactions could help avoid such problems.
- Eliminating other distortions in the taxation of labour and capital. Labour market behaviour is distorted by the differential treatment of dependent employees and the self employed, while investment patterns are affected by corporate income tax provisions that favour particular asset classes and sources of investment finance over others.
Steps to reduce the regulatory burden offer a way to reduce the cost of doing business – and thus relieve the pressure on the enterprise sector – at little or no fiscal cost:
- Further reducing rigidities in product and labour markets. Despite recent reforms, much remains to be done to reduce entry barriers in product markets, strengthen competition, particularly in network sectors, and relax labour market regulation.
- Pressing ahead with regulatory reform. Efforts to relax labour and product market regulation should be underpinned by greater consistency in the implementation of regulatory policies, with particular emphasis on administrative simplification and effective regulatory impact assessment.
- Further development of e government initiatives. Increased reliance on e government methods could make a significant contribution to the achievement of these objectives.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English and Czech. 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.