State’s Deteriorating Conditions for Employees Could Backfire

Economists have expressed varying opinions on the proposal that half of the Cultural and Social Needs Fund (FKSP) in the state and public administration should be allocated for supporting pension savings or investments in new funds starting next year. They agree, however, that people should be securing more for their old age. They further warn the government against cutting the earnings and benefits of working for the state.

A former governor of the Czech National Bank, Jiří Rusnok, told Novinky that binding half of the FKSP to savings for old age is sensible. As the replacement ratio of pension/wage from the state’s first pillar is expected to decrease gradually, the only reasonable way to adapt is to strengthen private savings for old age. The employer’s role in creating these savings is crucial, according to Rusnok.

However, Richard Hindls, the emeritus rector of the University of Economics in Prague, believes that the proposed measure to cut employee benefits in half and partly transfer them to pension savings is not conceptual. He argues that it makes little sense and does not help the negative balance of the pension account. Instead, it serves as further proof of the lack of courage to propose a real comprehensive pension reform.

Economists have reservations about the decrease in funds for wages by two percent. Rusnok warns, “First, specific agendas should have been abolished or digitized, then a certain number of employees could have been laid off accordingly, and the salaries could have been increased for those who remained, at least so that they would replace part of the drop in real wages in recent years. We will hardly ever see an efficient state administration if people in it are not adequately paid.”

The economist from PAQ Research, Jakub Komárek, believes that reducing the volume of funds in the state and public administration sounds appealing but does not solve the current economic and budget crisis. Instead, it deepens it. The Czech economy has fallen for the third quarter, mainly due to decreasing consumption. People don’t have money because of rising prices. Thus, the Czech economy’s results are some of the worst in the EU.

According to Komárek, the deterioration of conditions in public administration undermines the state’s future, as there is already a lack of quality teachers, doctors, analysts, and other professionals. “The idea that public administration will produce quality reforms without quality officials is illusory. Working for the state is not attractive for many young professionals today,” he said.