ISSUE #92

Written by: Anita Lišková

INSURANCE: Czech workers taking more and more sick days
The average Czech employee spends nearly 31 days a year on sick leave, and this number is still rising. This high rate increases production costs and decreases productivity. In 2002 government expenditures on sick leave and other benefits reached CZK 32.6 billion. The labor and social affairs ministry has prepared an amendment to the law on disability benefits and intends to introduce a new system of such benefits starting no later than 2006. Between 2004-2005 the reform should save the state 15% of its current level of support – i.e., nearly CZK 9.2 billion. For example, under the reform the disability rate should drop from today’s 50% to 25%, and the decisive period for calculating benefits should rise from three months to one year. According to the ministry, the proposed changes should help prevent the misuse of disability benefits and contribute particularly to a decrease in short-term sick leave.

HOUSEHOLDS: Household borrowing still on the rise
Consumer loans for households are one of the fastest developing financial services in the Czech Republic. According to Czech National Bank statistics, since 1999 household indebtedness has been rising by about CZK 20 billion per year. In March 2003 individuals’ debts to banks reached CZK 165 billion, and because the indebtedness rate of the Czech citizenry is relatively low compared to the rest of the world, specialists expect significant increases in the future. Installment sales firms are also recording increasing numbers of clients. For example, Home Credit Finance, which this May joined ČSOB in offering all-purpose loans at Česká pošta branches to reach as many people as possible, enjoyed record sales of CZK 5.6 billion in 2002. According to Pavel Plachký, Home Credit Finance’s director, there is also a visible shift in the types of goods purchased on installment plans: “Interest has shifted from “black technology” to “white technology”, furniture, and household appliances.”

ECONOMY: Will investors go elsewhere?
The Czech Republic will soon have increased competition in attracting foreign investment, not just from cheaper countries like the Ukraine to the east, but also from its neighbors, Poland, Slovakia, and Hungary. This is due not only to ever more expensive labor, but to corporate income tax rates as well, and the 15% tax on dividends that these countries are trying to eliminate. While in the Czech Republic the corporate income tax shouldn’t drop from its current 31% to 24% until 2006, Slovakia plans to push through a 20% rate next year. The planned flat corporate income tax in Poland should start out at 24%, and in Hungary some entrepreneurs can even qualify for the 18% rate. Although the finance ministry isn’t afraid of investors leaving, according to analysts the existing proposed tax reform isn’t radical enough.