Business Sobotka’s first hundred days from an economic perspective

28-04-2014 15:50 | Chris Johnstone

The government of Bohuslav Sobotka has made a brisk start in business and economic areas, though some of the more difficult decisions have been postponed. A clean divide has been made with the previous centre-right government. While some personal prickliness is evident, major rifts have been controlled.

Bohuslav Sobotka, photo: archive of Czech GovernmentBohuslav Sobotka, photo: archive of Czech Government One hundred days is usually deemed to be the milestone when newly installed governments and administrations are subject to the first evaluation of how they are getting on. The term seems to derive from Napoleon Bonaparte’s return from exile in 1815, which ended around 100 days later with his, literal, Waterloo. So, bright starts can be misleading.

Although delayed in the starting blocks by presidential procrastination, the three-way Czech coalition headed by Social Democrat Bohuslav Sobotka has made a brisk and relatively faultless start. The Cabinet’s approval rating stands at around 42 percent with the honeymoon period not yet perceivably over.

Wholesale changes have been made at the top of many state agencies and institutions and audits are being carried out across most of the public sector so that light can be shed on any skeletons from the past administration. It looks like a fair trawl of dubious contracts will show up.

From tax to Temelín expansion, foreign investment incentives and attitudes towards the euro, infrastructure spending and promotion of exports, the government has set out to distance itself from the former centre-right coalition.

This has not been difficult. As well, as the fact that the coalition parties are broadly pro-European, the new government is fortunate that it can ride strengthening economic growth and declining unemployment to ditch the spending cuts mantra of the previous administration without looking imprudent. Capital spending, one of the areas that fared worst in the previous four years, should make a comeback while the government looks like to should have no real difficulty keeping the public sector deficit below 3.0 percent of GDP.

Previous moves to fashion a simplified but ever more punitive Value Added Tax into one of the state’s main revenue flows have been reversed. A new lower rate will take effect from January next year with the two previous rates trimmed back as well.

But Social Democrat desires to get the self employed to shoulder more of the overall tax burden still have to be finalized and squared with the ANO and Christian Democrat coalition partners, something that could be difficult. And the partners are likely to clash again over other proposed tax changes, such as Christian Democrats for higher allowances for children, and bids to get higher wage raises to parts of the public sector.

And while there is still a lot of talk about a clampdown on tax evasion and stricter asset declarations there are no real results at this stage.

After dropping to almost insignificant levels, foreign direct investment looks like it is picking up once again and could play an important role in economic growth and jobs creation. Investment promoter CzechInvest and export facilitator CzechExport are being given new leases of life.

Although Czech government lobbying was reported to have been largely last minute, it was sufficient to help persuade Volkswagen to choose Škoda Auto’s Kvasiny site for the 10 billion crown investment needed for production of a new SUV vehicle. SEAT had been lobbying for the investment as well.

Amazon has opted to construct one logistics site outside Prague and Brno, in spite of itself, might still not be out of the running for a second centre. Other major investment projects are said to be in the pipeline.

Tensions in the business and economic spheres have arisen, especially when ANO leader and finance minister Andrej Babiš appears to be stepping on several of his colleagues toes at once in his ambition to get quick results. Added to that, longer term financial targets on the spending and revenues side still have to be worked out.

Most government’s see their popularity slide over time as they make more enemies than friends. This government has a bit more money to play with and that usually helps to accumulate less of the former and more of the latter.

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