Czech Government Considers Eliminating Tax Exemptions on Employee Benefits as Part of Consolidation Package

The Czech government is considering eliminating tax exemptions on non-financial employee benefits as part of a consolidation package aimed at reducing the budget deficit by CZK70bn ($3.2bn) for 2022. The package also includes measures to reduce government spending, such as downsizing state administration, cutting state contributions to building savings and reducing subsidies. Some within the governing coalition have expressed opposition to the proposals.

The consolidation package, which totals CZK186bn ($8.5bn), combines measures on the income and expenditure sides of the budget. While Prime Minister Petr Fiala has called the expenditure side more critical, Finance Minister Zbyněk Stanjura is reportedly looking to cut the volume of subsidies paid out by tens of billions of crowns. On the revenue side, the Ministry of Finance plans to change value-added tax and eliminate kindergarten fees and tax credits for spouses.

Some Czech media sources suggest that the government may eliminate tax exemptions for employee benefits, such as discounts, vouchers, and services in areas such as gastronomy and health. The Union of Employer Associations of the Czech Republic has voiced its opposition to the measure, noting that approximately three million employees use non-financial benefits to buy medicines, vitamins, and medical aids, as well as to pay for children’s camps, sports activities, cultural events, education, rehabilitation, or spa treatments. The government is also said to be considering introducing sickness insurance for employees at a rate of 1.1% of gross salary and abolishing the waiting period of three days before benefits start to be paid.

Finance Minister Stanjura has stated that the consolidation measures are necessary to address the country’s budget deficit and to prevent a rise in public debt. According to the Ministry of Finance, the budget deficit for 2021 is estimated at CZK330bn ($15bn) and is expected to reach CZK270bn ($12.3bn) in 2022. The Czech Republic’s public debt reached a record high of 44.9% of gross domestic product (GDP) at the end of 2020, up from 36.2% in 2019. The government has pledged to reduce the public debt to 35% of GDP by 2025.

Opposition parties and some governing coalition members have criticized the proposed elimination of tax exemptions on non-financial benefits. They argue that it would negatively impact low-income employees and result in higher costs for employers, who would have to pay taxes on the value of benefits. Others have argued that the government should focus on reducing spending rather than increasing revenue.

The consolidation package will continue to be debated over the coming days. Some analysts suggest that the government may face difficulty passing the measures through parliament, as it holds a slim majority and may face opposition from coalition partners.