Sunday, February 08, 2009

live for today, forget tomorrow: the state begins gutting social security

Last June, as part of a sweeping state finance reform, the Czech government approved a new tax cut for employers and employees alike. As a result, employers are able to divert less of their revenue -- specifically 1.5 percent less -- toward the state social security fund. The employer's contribution to the fund has been lowered from 8 to 6.5 percent of the employee's gross earnings. Employees' social security payroll tax rates have been cut as well from 12.5 to 11 percent.

These changes have just gone into effect this January, and for the first time this month, workers will see a difference, albeit a miniscule one, on their paychecks.

It behooves to say that the social security fund covers disability and unemployment insurance as well as retirement, the largest slice of the pie.

No matter the spin the media gives these changes and the promises that the pension portion of the government fund will remain untouched, the tax cuts reek of a backdoor effort to bankrupt the social security fund in order to force its privatization, a goal the right-wingers and big-wig financiers such as the IMF, have been pushing for, not without opposition.

Originally, in addition to lowering the social security tax rates, the government promised to lower income tax, but the Minister of Finance Miroslav Kalousek fought against it, citing that those in the higher income brackets would be the hardest hit since the lowest earning individuals already don't pay taxes. Instead, the government opted for reducing social security tax rates for both employers and employees - this in exchange for eliminating a whole host of other tax cut incentives in the process.

I find it fascinating that the tax cuts have already been planned since June, well before the global financial crisis hit Europe. Then they were "sold" to the public as extra money in the pockets for just about everyone, other than the self-employed.

Since the financial crisis has hit, the tax cuts have suddenly become the government's way to help boost the economy and prevent lay-offs, which are now taking place at a record high.

However, the correlation between tax cuts and reduced lay-off rates just hasn't been proven. And as far as helping the regular folk with these tax cuts, most will not really feel much difference. With rent and electricity prices up sharply as well as record personal debt, there is doubt that people will go wild spending the pitiful extra sum of 150 to 200 crowns (which equates to roughly $7 to $10) per month.

If indeed the social security fund is getting gutted out, in part because of this tax reform, the timing couldn't be worse for the working people. The financial crisis is hitting the Czech Republic hard. Retirement funds are already stretched thin, considering the population is aging fast and there soon won't be enough people in the workforce to replenish the fund for the next generation. Perhaps a pension reform to compensate for that fact is in order, but is privatization the answer? Certainly lowering social security tax is not.

Clearly, however, the direction the big players in the government are taking is clear: cutting government spending, slashing state and regional budgets, continuing privatization of public assets, which leads to more profits for the lobbying parties. Whether the last remaining state-run domains will be sold out and securities such as pension and quality, affordable health care pulled from under the people like a rug, remains to be seen. May the people put up a good fight.

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