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OECD Economic Surveys: Czech Republic 2010

image of OECD Economic Surveys: Czech Republic 2010

OECD's periodic survey of the Czech economy. This 2010 edition includes chapters covering the challenge of fiscal consolidation after the crisis, pro-growth tax and benefit reform, and improving the business environment. The survey finds that the Czech economy was severely affected by the global downturn, owing to its high degree of openness and integration in global production chains. The fiscal position was also hit hard, prompting a rapid shift in policy from stimulus to consolidation.  The medium-term challenges facing the country are principally concerned with creating conditions of rapid convergence with advanced OECD economies by restoring the sustainability of public finances and improving the business environment.

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Further advancing pro-growth tax and benefit reform

In 2008, the government implemented a major overhaul of the personal income tax (PIT), replacing the previous progressive rate schedule with a single 15% rate levied on an enlarged base. This was accompanied by significant changes to the corporate income tax (CIT) and an increase in the concessionary rate of value added tax (VAT) applied to many goods and services. The reform made the tax system more transparent and was broadly consistent with OECD recommendations concerning pro-growth tax reform. These tax changes followed the adoption of significant changes to the benefit system, particularly housing and social assistance benefits, in 2006-07. This chapter describes the main elements of these tax and benefit reforms and provides an initial assessment of their impact, with particular emphasis on changes in the effective tax rates of workers and firms. It begins with an overview of the systems and a summary of recent changes. This is followed by an evaluation of those reforms. A final section explores the scope for further reforms in future.

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