Czechs Can Hike Pensions Without Becoming Greece, Minister Says

(Bloomberg) -- One of Europe’s least indebted countries has room to boost pensions without facing a Greece-like crisis in the coming decades, its labor minister said, criticizing decades of austerity-minded governance.

With solid economic growth and the EU’s lowest unemployment, the Czech Republic is running one of the bloc’s biggest budget surpluses and has its fourth-smallest public-debt burden. While that has given the government room to raise retirement spending, a revamp of the tax system can finance an even bigger expansion in the long run, Labor Minister Jana Malacova said in an interview.

“When you look at other countries, we do not spend that much on pensions and, based on current economic forecasts, there’s still leeway for that,” Malacova, 37, said in an interview. “The long-term debate should focus on adding more finances to the system, which is not possible without higher tax income.”

The minister lambasted warnings issued last week by the independent National Fiscal Council, an independent budget advisory panel, that said the EU’s richest ex-communist member will face a Greece-like crisis in several decades as the share of pensioners surges and taxpayers retire. The “functional” pension system depends on overall economic competitiveness rather than on the number of retirees, she said.

The year before last, spending on old-age pensions was only about three-quarters of the EU average of 10.2 percent of gross domestic product.

Catching Up

With output per capita of about nine-tenths of the EU average last year, the Czechs have outpaced their regional peers in terms of living standards, as well as older members Greece and Portugal. But they lag far behind neighboring Germany, where that figure is 123 percent. Other ex-communist countries including Slovenia, Poland and Hungary are also slowly closing the distance.

One way to rejuvinate the climb would be to spend more on state wages and raise the minimum wage over the longer term, she said. The average retirement check for men was 13,093 koruna ($570) a month last year. For women, it’s 10,772 koruna.

Billionaire Prime Minister Andrej Babis’s government is planning on spending 8 percent more on public-sector wages in 2019 after announcing a record 900 koruna a month increase in pensions due in January. Malacova is also proposing a 10 percent rise in the minimum wage to 13,400 koruna a month.

To finance that, the government should revamp the tax system, said Malacova, a member of the junior ruling Social Democrats. Measures could include scrapping tax exemptions, including those for stay-at-home spouses, and cracking down on evasion. Her party has proposed levying a special tax on banks, as well as other industries, an issue Babis’s government-leading ANO party opposes.

“It’s simply not fair to scare people by saying that, with the population aging, there won’t be any money left for pensions,” she said. “The Social Democrats are proposing new corporate taxes for energy, telecommunications and banking sectors. That’s what pension reform should be about.”

To contact the reporter on this story: Lenka Ponikelska in Prague at lponikelska1@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net, Michael Winfrey, Paul Abelsky

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