The Czech RepublicThe Czech Republic

By: Mary HamiltonBy: Mary Hamilton

Economics of the European Economics of the European UnionUnion

April 17, 2008April 17, 2008

Fast FactsFast Facts

• National name:National name: Ceska Republika Ceska Republika

• President:President: Václav Klaus (2003) Václav Klaus (2003)

• Prime Minister:Prime Minister: Mirek Topolánek Mirek Topolánek (2006)(2006)

• Total area:Total area: 30,450 sq mi 30,450 sq mi

• Capital and largest city:Capital and largest city:– Prague, 1,378,700Prague, 1,378,700

• Language:Language: Czech Czech

Map of the Czech RepublicMap of the Czech Republic

Country HistoryCountry History

• Czechoslovakia was founded in 1918 after the Czechoslovakia was founded in 1918 after the collapse of the Habsburg Empire. collapse of the Habsburg Empire.

• A communist regime was installed in 1948, and A communist regime was installed in 1948, and it lasted until the 1989 "Velvet Revolution". it lasted until the 1989 "Velvet Revolution".

• The first free election was held in June 1990 The first free election was held in June 1990

• On Jan. 1, 1993, the Czechoslovakian federation On Jan. 1, 1993, the Czechoslovakian federation was dissolved and two separate independent was dissolved and two separate independent countries were established—the Czech Republic countries were established—the Czech Republic and Slovakia. and Slovakia.

Country History ContinuedCountry History Continued

• The Czech Republic joined NATO (North The Czech Republic joined NATO (North Atlantic Treaty Organization) in March 1999. Atlantic Treaty Organization) in March 1999.

• President Václav Havel left office in Feb. 2003, President Václav Havel left office in Feb. 2003, after 13 years as president. after 13 years as president.

• In March, Václav Klaus became the Czech In March, Václav Klaus became the Czech Republic's second president Republic's second president

• In May 2004, the Czech Republic joined the In May 2004, the Czech Republic joined the EU. EU.

• After an inconclusive election in June 2006, After an inconclusive election in June 2006, the political deadlock was broken in August, the political deadlock was broken in August, with rightist Mirek Topolánek appointed prime with rightist Mirek Topolánek appointed prime minister. minister.

Economic SummaryEconomic Summary• GDP/PPP GDP/PPP (2007 est.): $249 billion; (2007 est.): $249 billion;

• GDP per capita: GDP per capita: $22,000 (2005 est.)$22,000 (2005 est.)

• GDP by sector: GDP by sector: agriculture (3.4%), agriculture (3.4%), industry (39.3%), services (57.3%) (2004)industry (39.3%), services (57.3%) (2004)

• Real growth rate:Real growth rate: 5.7%. 5.7%.

• Inflation:Inflation: 2.6%. 2.6%.

• Unemployment: Unemployment: 6.6%.6.6%.

• Labor force: Labor force: 5.31 million; agriculture 5.31 million; agriculture 4.1%, industry 37.6%, services 58.3% 4.1%, industry 37.6%, services 58.3% (2003 est.).(2003 est.).

Labor Income TaxationLabor Income Taxation

• The Czech income tax rate for individual's The Czech income tax rate for individual's income in 2008 is flat, a 15% rate. income in 2008 is flat, a 15% rate.

• In 2007 tax on the income of individuals In 2007 tax on the income of individuals was payable at rates of 12% - 32%.was payable at rates of 12% - 32%.

• UN Gini: 25.4UN Gini: 25.4– Most European nations tend to have Gini Most European nations tend to have Gini

coefficients between 24 and 36coefficients between 24 and 36– United States' and Mexico's Gini coefficient are United States' and Mexico's Gini coefficient are

both above 40, indicating that the United States both above 40, indicating that the United States and Mexico have greater inequality. and Mexico have greater inequality.

Past Employment ProtectionPast Employment Protection

• International research carried out in 2004 International research carried out in 2004 positioned the Czech Republic in the top positioned the Czech Republic in the top half of those OECD countries with lower half of those OECD countries with lower overall employment protection, that is, overall employment protection, that is, with a higher ENF (External Numerical with a higher ENF (External Numerical Flexibility) value. Flexibility) value.

• Czech EPI level: 1.9 (2004)Czech EPI level: 1.9 (2004)

• Denmark (model country for flexicurity) Denmark (model country for flexicurity) EPI level: 1.8 EPI level: 1.8

Total EPI in selection of Total EPI in selection of OECD countries, 2003 OECD countries, 2003 (scale of 0–6)(scale of 0–6)

• Note: EPI ranges from 0, representing maximum flexibility, to 6, Note: EPI ranges from 0, representing maximum flexibility, to 6, constituting the maximum extent of constituting the maximum extent of employmentemployment regulation. regulation.

• SourceSource:: OECD OECD EmploymentEmployment Outlook 2004 Outlook 2004

Current Employment Current Employment ProtectionProtection• Changes in employment regulation in Changes in employment regulation in

recent years have moved the Czech recent years have moved the Czech Republic towards those countries with a Republic towards those countries with a higher rate of employment protection.higher rate of employment protection.

• EPI level: 2.1 (2007)EPI level: 2.1 (2007)• This development is primarily the result This development is primarily the result

of offering increased protection in of offering increased protection in relation to temporary forms of relation to temporary forms of employment .employment .

Czech Republic Social Czech Republic Social SecuritySecurity

• The system of social security made The system of social security made up of three tiers: up of three tiers: – State Social SubsidyState Social Subsidy– Social Assistance Social Assistance – Social Insurance**Social Insurance**

The State Social SubsidyThe State Social Subsidy

• Consists of different benefits and allowances:Consists of different benefits and allowances:– child care allowanceschild care allowances– birth grantsbirth grants– death grantsdeath grants

• Administered at regional level by local bodies Administered at regional level by local bodies of the state administration of the state administration

• All permanent or long-term residents of the All permanent or long-term residents of the CzechCzech RepublicRepublic are entitled to State social are entitled to State social subsidy benefits, of which entitlement to subsidy benefits, of which entitlement to child allowances, social child allowances, social benefitbenefit, transport , transport and housing benefits are means tested. and housing benefits are means tested.

The Social Assistance The Social Assistance ProgramProgram• Complementary social safety net type of Complementary social safety net type of

system targeted principally towards system targeted principally towards persons in need, along with charities and persons in need, along with charities and other non-state institutions.other non-state institutions.

• All permanent or long-term residents of All permanent or long-term residents of the the CzechCzech RepublicRepublic are entitled to social are entitled to social assistance when their other forms of assistance when their other forms of income do not suffice in ensuring an income do not suffice in ensuring an adequate level of living. adequate level of living.

• Administered at regional level by local Administered at regional level by local bodies of the state administration.bodies of the state administration.

Social Insurance Social Insurance • Protects against the risks of loss of income Protects against the risks of loss of income

due to old age, short-term illness, due to old age, short-term illness, invalidity, invalidity, unemploymentunemployment and death of a and death of a breadwinner, covering all workers. breadwinner, covering all workers.

• Supervised by Ministry of Labour and Supervised by Ministry of Labour and Social Affairs Social Affairs

• Contributions to the social insurance Contributions to the social insurance scheme are set as a percentage of the scheme are set as a percentage of the gross salary for the period concerned: gross salary for the period concerned: – 25% paid by employee 25% paid by employee – 75% paid by employer75% paid by employer

Heath InsuranceHeath Insurance

• The Health Insurance System is compulsory The Health Insurance System is compulsory and is targeted at all persons who and is targeted at all persons who permanently reside in the permanently reside in the CzechCzech RepublicRepublic. .

• The financing of the health care scheme is The financing of the health care scheme is entrusted to semi-public administrative entrusted to semi-public administrative bodies. bodies.

• Citizens decide the health insurance body Citizens decide the health insurance body with which they would like to be insured. with which they would like to be insured. – Largest proportion of citizens is insured by the Largest proportion of citizens is insured by the

General Health Insurance Company.General Health Insurance Company.

Strengths of the Social Strengths of the Social SystemSystem• A universal-type of social security system is A universal-type of social security system is

characterized by considerable equality of incomes characterized by considerable equality of incomes and relatively generous benefits to a society. and relatively generous benefits to a society.

• The insurance system encompasses security The insurance system encompasses security mechanisms against the risk of loss of income mechanisms against the risk of loss of income due to loss of employment, old age, illness, due to loss of employment, old age, illness, invalidity, unemployment and death of a spouse.invalidity, unemployment and death of a spouse.

• A higher level of co-operation with the EU means A higher level of co-operation with the EU means better conditions for growth, which could in turn better conditions for growth, which could in turn be favorable to the social security systems. be favorable to the social security systems.

• Social security expenditure as a proportion of the Social security expenditure as a proportion of the state budget as well as a proportion of the GDP is state budget as well as a proportion of the GDP is likely to rise.likely to rise.

Obstacles for the Social Obstacles for the Social SystemSystem• The share of social security expenditure as a The share of social security expenditure as a

proportion of GDP in the proportion of GDP in the CzechCzech RepublicRepublic oscillates oscillates around 20%, which is lower than the EU average by around 20%, which is lower than the EU average by approximately 6%. approximately 6%. – Comparable with the EU countries with less comprehensive Comparable with the EU countries with less comprehensive

social security systems (Ireland, Spain, Portugal, Greece). social security systems (Ireland, Spain, Portugal, Greece).

• It will be increasingly difficult to maintain the real It will be increasingly difficult to maintain the real level of individual benefits.level of individual benefits.

• Socio-demographic trends increasingly put pressure Socio-demographic trends increasingly put pressure on the social security system making it hard to on the social security system making it hard to maintain the existing level of social protection.maintain the existing level of social protection.

Main Reforms of the Welfare Main Reforms of the Welfare SystemSystem

• The government's falling popularity ratings The government's falling popularity ratings mean that any proposals for radical reform mean that any proposals for radical reform are likely to meet with increasingly strong are likely to meet with increasingly strong resistance within the ruling coalition. resistance within the ruling coalition.

• In March the lower house of parliament In March the lower house of parliament approved the draft law on pension reform approved the draft law on pension reform in its first reading. in its first reading.

• The government has approved changes to The government has approved changes to the law on pension insurance, allowing it the law on pension insurance, allowing it to raise pensions again in 2008. to raise pensions again in 2008.

Source ListSource List

• "Country Briefings: the Czech Republic." "Country Briefings: the Czech Republic." EconomistEconomist. 10 Apr. . 10 Apr. 2008. Economic Intellegence Unit. 17 Apr. 2008 2008. Economic Intellegence Unit. 17 Apr. 2008 <ecomomist.com>. <ecomomist.com>.

• "Heathcare System." "Heathcare System." Czech Republic: the Official Website of Czech Republic: the Official Website of the Czech Republicthe Czech Republic. Ministry of Foreign Affairs of the Czech . Ministry of Foreign Affairs of the Czech Republic. 17 Apr. 2008 <http://www.czech.cz/en/czech-Republic. 17 Apr. 2008 <http://www.czech.cz/en/czech-republic/health-and-health-care/healthcare-system/>. republic/health-and-health-care/healthcare-system/>.

• MÁcha, Martin. "Social Security System in the Czech MÁcha, Martin. "Social Security System in the Czech Republic." Republic." Socialsecurity.FgovSocialsecurity.Fgov. 17 Apr. 2008 . 17 Apr. 2008 <http://socialsecurity.fgov.be/bib/frames/engels/btsz_01_20<http://socialsecurity.fgov.be/bib/frames/engels/btsz_01_2001_macha.htm>. 01_macha.htm>.

• "The Czech Republic." "The Czech Republic." The CIA World FactbookThe CIA World Factbook. 15 Apr. . 15 Apr. 2008. The Central Intelligence Agency. 17 Apr. 2008 2008. The Central Intelligence Agency. 17 Apr. 2008 <https://www.cia.gov/library/publications/the-world-<https://www.cia.gov/library/publications/the-world-factbook/geos/ez.html>. factbook/geos/ez.html>.