OECD Economic Surveys: Czech Republic 2018

Annex. Progress in structural reforms

A. Strengthening the fiscal framework and fiscal sustainability

 

Recommendations in previous Surveys	Action taken
Implement the new fiscal framework and the fiscal council.	Acts on budgetary responsibility entered into force in February 2017. A medium-term budgetary objective is set to ensure long-term sustainability of public finances. Two independent institutions are put in place to guarantee the respect of fiscal rules: National budgetary council (members appointed on 25th January 2018: surveillance of the respect of fiscal rules and assess the impacts of governmental actions on long-term sustainability of public finances   Committee for Fiscal Forecasts (appointments are ongoing): the other will verify the plausibility of macroeconomic and fiscal forecasts used in budgetary process.
Use a multi-pronged approach to secure fiscal sustainability. Take steps to secure an increasing effective retirement age.   Continue to ensure that the indexation of pensions does not lead to old-age poverty problems.   Consider options for diversifying income sources for pensioners.   An additional measure could be to bring forward the increases in the statutory retirement age.	Limited progress has been made. Pension indexation changes in 2017 are more generous to protect the purchasing power of pensions.   Retirement age increases have been capped at 65 years of age for both men and women.

B. Fostering productivity growth and income convergence

 

Recommendations in previous Surveys	Action taken
R&D and innovation systems
Encourage the participation of managers and workers in training and further education to increase the productivity of staff. Offer individual training accounts or refundable tax credits to individuals that undertake training at accredited institutions.	No action. Different options are preferred. The Ministry of Education, Youth and Sports (MEYS) prepared "Action Plan for Development of Human Resources for Research, Development and Innovation and Gender Equality in Research, Development and Innovation in the Czech Republic for the years 2018-2020" (hereinafter referred to as "HR Action Plan"), which was approved by the Government Resolution No. 8 of 3 January 2018. In the coming period, the measures resulting from the approved HR Action Plan will be implemented.
Unify the design, assessment and co-ordination of research and development and innovation policies in a single institution. Specifically, research institutions should be under the responsibility of the same institution.	Work in progress. The August 2017 proposal for a new law on the support R&D&I has been put on hold.
Increase R&D spending effectiveness by better targeting government funding to broaden the scope of R&D activities in the Czech Republic.	Has been realized under the National R&D&I Policy respectively the National RIS3 Strategy through targeting of (European, national and private) funds to activities leading to the priority defined promising areas.
Develop government co-financing schemes to complement grants and increase fiscal incentives for business R&D spending.	No action taken
Increase incentives and funding through the national programmes of applied research and innovations to develop collaboration between research entities and businesses.	Ministry of Education, Youth and Sports (hereinafter referred to as “MEYS”) implemented within the OP RDE a call called "Building Expert Capacities - Transfer of Technologies" aimed at supporting the development of centres and other necessary background for technology transfer at research organizations in the Czech Republic. MEYS also continuously implements “National Sustainability Programs I and II”, with the establishment of "Regional Centres for Research and Development” created for the purpose of co-operation of the public research sector with the business sphere.
Develop mobility schemes for public researchers to work during some period in businesses research centres to facilitate the inter-actions between research institutions and firms.	Addressed through MEYS programmes: “Pre-application Research”, “Pre-Application Research for ITI”, “Long-term inter-sector co-operation” and “Long-term inter-sector co-operation for ITI” for support of individual projects under the OP RDE and already above mentioned “Building Expert Capacities - Transfer of Technologies”.
Use public procurement contracts to initiate innovative solutions in strategic areas with societal benefits.	No action taken
Remove the barriers to the mobility of workers to reduce skill mismatch by improving the functioning of the private rental market, lowering the cost of closing a business and easing the stringency of employment protection legislation.	In 2016, a financial contribution for jobseekers who, due to regional disparities (of a structural and qualification nature), have to commute for work outside their place of residence was introduced. The allowance is provided monthly, for a 12-month period, at a flat rate based on the commuting distance. Also, an allowance to change place of residence because of employment was introduced. This financial subsidy of CZK 50 000 can be provided to an applicant who moved house for the above-mentioned reasons within the territory of the Czech Republic.
Increase the share of government R&D grants directed to programmes including international collaborations and to support activities conducive to the acquisition of knowledge-based capital.	In progress. MEYS prepared an “Action Plan of International Co-operation of the Czech Republic in R&D and the Internationalization of the R&D Environment of the Czech Republic for the Years 2017-2020” (hereinafter referred to as “Action Plan”), which was approved by the Government Resolution No. 1179 of 19 December 2016.
Creating a productivity enhancing environment
Limit the possibilities to delay bankruptcy procedures and eventually allow for the write-off of debts.	Partial developments had been made by recent enactment of the amendment to the Act no. 182/2006 Coll., on Bankruptcy and Methods of its Resolution (Insolvency Act). This relatively extensive amendment entered into effect on 1st July 2017 contributed to significant acceleration of unsuccessful discharge procedures. Since 1st July 2017, unsuccessful discharges prevailingly lead to the complete dismissal of the insolvency proceedings. This allows accelerated write-off of debts for creditors.
Reduce the number of regulated professions and strengthen the competition and regulation of product markets framework.	The general trend in the Czech Republic is to deregulate the regulated professions. For instance, the licensed trade “Preparation of catalogue data” was deregulated in 2017.
Accelerate the creation of funds and guarantee programmes to support SMEs and innovation.	In progress. Example of policy initiatives: In 2017, 2142 SMEs were provided support amounting to EUR 156.2 million within the framework of the program Guarantee 2015-2023.   During 2017 the first programs supporting venture capital were initiated by the Ministry of Industry and Trade in co-operation with European Investment Fund (EIF). In January 2017 the Fund of funds managed by EIF was created, combining EUR 40 million from OP EIC (program Venture Capital) and 10 million from EIF RCR mandate. The first selected funds shall begin to operate during 2018.   At the end of 2017 the Ministry of Industry and Trade joined regional initiative of EIF called the Central Europe Fund of Funds, together with Austria, Slovenia and Slovakia. The Czech contribution delivered by the Czech-Moravian Guarantee and Development Bank amounts to EUR 8.2 million, the combined sources of the Fund of funds amount to EUR 80 million.
Reduce the advantages of self-employment in terms of social contributions and personal income tax.	Since January 2018 there has been a significant reduction of the flat-rate expenditure limit (to CZK 1 million) for entrepreneurs. This measure reduces the fictitious reporting of employment as a self-employment activity and approximates the level of taxation of self-employed to workers (this should be also addressed by other institutes that will be implemented by the forthcoming new Income Tax Act). It is also expected to introduce a new discount of CZK 500 per month as compensation for social security payments for employees. These expenditures are not reflected in contemporary tax base.
Encourage employers to provide training to young unskilled workers through tax subsidies or targeted reductions in social security contributions. Looking ahead, if the statutory minimum wage increases sufficiently, an additional measure could be the introduction of a youth minimum wage linked to training.	No action taken concerning training support through tax subsidies or reduction in social contribution. All contribution in various projects focused on youth employment support is done via financial funds to create new jobs or on in the job training. Minimum wage has been increasing steadily in the past few years to amount 40% of average wage. There are equal conditions for all - different minimum wage rate for disability pension beneficiaries has been abolished as of 1 January 2017. Lower min. wage rate for youth up to 21 years was abolished by 1 January 2013.

C. Promoting competition and improving the business environment

 

Recommendations in previous Surveys	Action taken
Improve the managerial integrity of remaining state-owned enterprises by concentrating governance within a single authority. Privatise and divest business-related state-owned enterprises and activities.	No action
Secure effective independence for all network regulators, improve the co-ordination between the competition authority and regulators, and have a common approach to what constitutes a proper definition of market dominance.	ENERGY SECTOR: The Energy Regulatory Office (ERO) is the regulatory authority responsible for the Czech energy sector (electricity, gas and heating). The effective independence of the Energy Regulatory Office is set in the Energy Act No. 458/2000 of 28 November 2000. Since 1 August 2017 (an amendment of the Energy Act by the Act No. 131/2015) the ERO is controlled by the Board of the Energy Regulatory Office which consists of five board members, each nominated by the minister of industry and trade and confirmed by the government for a five year term. On 29 November 2017 the Energy Regulatory Office and the Office for the Protection of Competition (UOHS) signed a memorandum on mutual co-operation to create a clear and stable regulatory framework in the energy sector. electronic communications/postal services:The Czech Telecommunication Office, sectoral regulatory authority, is independent according to the Electronic Communications Act (127/2005 Coll., as amended). This office co-ordinates and co-operates with the Office for the Protection of Competition in the field of relevant market analyses and in dealing with significant market power.
Tackle vertical constraints on competition via effective ownership unbundling or via holding structures with financial separation of all activities that counters the risk of cross-subsidisation.	ELECTRICITY SECTOR: In the Czech Republic, the unbundling process in the electricity sector, as required by the EU third energy package, has been completed. GAS INDUSTRY:As well in the gas industry, ownership unbundling has already been implemented. Electronic communications/postal services sector: Financial and functional separation is voluntary within the Czech legal framework. However, we have positive examples, such as the division of the former incumbent, nowadays 2 companies: CETIN (Ceská telekomunikacní infrastruktura) – pure network operator, O2 Czech Republic (pure service provider). The postal incumbent is obliged by law to keep separate accounts for costs and revenues related to the provision of each of the universal services. On the basis of those records the national regulatory authority can check the calculation of the net cost, if any, of universal service obligations. Those data are also used for price regulation and price control makes it possible to prevent potential cross-subsidies. RAILWAY SECTOR: The vertical separation in railway sector started in 2003 when Ceské dráhy, s. o., was divided into Ceské dráhy, a. s - railway operator company, SŽDC, s. o. – infrastructure manager and the rail inspection when the Act n. 77/2002 Coll., on Ceské dráhy, a. s., SŽDC, s. o. and further amendments was adopted. In 2011 the process of separation moved significantly forward when infrastructure manager (SŽDC, s. o.) took over traffic management. In 2016 property of all railway stations within the Czech Republic was transferred from Ceské dráhy, a.s. to infrastructure manager (SŽDC, s. o.) in 2016.

D. Promoting a more effective public sector

 

Recommendations in previous Surveys	Action taken
Enhancing the effectiveness of public administration
Further improve tools and rules to increase use of joint procurement by public entities. Increase auditing throughout the process and monitoring of processes and outcomes.	No action taken
Establish specialist competency centres to help public bodies and local governments with technical procurement contracts.	The Ministry for Regional Development provide the contracting authorities with methodological support. Regular training courses are organised.
Designate responsibility for the co-ordination and prioritisation of investments on the basis of the highest social return. Evaluate investment needs in a standardised way across sectors and use cost-benefit analysis for all large projects.	No action taken
Increase monitoring and accountability throughout the investment cycle, from project selection through to ex post evaluation.	No action taken
Use and publish standardised performance indicators for publicly funded activities at all levels of government. Increase the use of benchmarking.	There have been no such steps undertaken which would have led towards standardised performance indicators for publicly funded activities at all levels of government at this point. At this point CBA does not intend to do so as municipalities and regions are according to the Czech law independent and decide fully on its own.
Extend the national and regional standing conferences for EU-funded projects to all significant investment projects and cross-cutting public policies.	No action taken
Give the Supreme Audit Office powers to audit all public bodies and local government.	There was a legislative proposal focused on extending of the powers of the Supreme Audit Offices to audit further public bodies and local and regional governments. It was approved by the Chamber of Deputies, in a later stage however rejected by the Senate.
Review the implementation of the Civil Service Act, including the capacity of human resources units, the overall remuneration system and conditions and staff engagement.	The Civil Service Act is subject to a deep ex-post evaluation aimed at its implementation and functioning. This evaluation includes also remuneration system, conditions and staff engagement.
Introduce conflict of interest disclosures and create a register of private interests for officials involved in procurement.	The Public Procurement Act has introduced an obligation to identify the actual owner of the selected supplier. Since 1 January 2018, the central register of real owners has been created.
Improving the effectiveness of sub-national government arrangements
Establish framework conditions which help municipalities to reap the benefits from joint service provision, while building support for mergers.	A special project in this regard is being implemented in co-operation between the Ministry of Interior and the Union of Towns and Municipalities. Objective of the project “Shared service centres” is to ensure more efficient delivery of public services to citizens. The political representation strictly refuses any discussions concerning mergers of municipalities.
Increase incentives and technical support for mergers.	There are indirect financial incentives for municipalities providing a wider range of services for citizens and delegated state administration tasks. The Ministry of Interior is however ready to provide a methodological and technical support to those municipalities which merge on a voluntary basis.
Increase local capacity through technical assistance and supporting shared services centres. Consider establishing a minimum size required for carrying out certain municipal functions.	Shared service centres are currently being developed within the framework of the above-mentioned project focused on inter-municipal co-operation.
Reduce the share of grants and transfers that are earmarked and ensure adequate service standards are maintained by monitoring performance.	The main general grant for municipalities and regions (contribution for performance of state administration) has been increased and reshaped in last several years. Earmarked grants are provided principally for specialised projects in specific fields. Maintaining of service standards is continuously monitored by higher-level authorities, specialised control bodies or by beneficiaries themselves. In 2018, the law on budgetary designation of taxes was changed and the share of municipalities on VAT was increased. Transfers from central level account only for 15 % of total revenue of municipalities.
Simplify the system of territorial administration by completing the transition from the system of districts and streamlining delivery of delegated functions at municipal level.	There is a legislative proposal of the Act on Territorial Division of the State which was carried out and submitted just for the purpose of simplification of the system of territorial public administration and which includes all mentioned aspects. It should be submitted to the Government by the end of 2018.
Increase incentives in local government revenues to grow local economies. Use a fiscal equalisation component to adjust for differences in revenue-raising capacity.	Local economies, after recovering from the financial crisis of 2008 – 9, are fluently growing. Some equalisation components are currently in place as well.
Proceed with plans to introduce a debt rule for local governments.	The debt rule for local governments was introduced by law, and although challenged by a group of Senators due to alleged excessive interference of the State in the right for self-government, it was recently confirmed by the Constitutional Court. Debt rule for local governments was introduced by the Act No. 23/2017, o rules of budgetary responsibility with the effect as of 1 January 2018.

E. Achieving efficiency in the energy system

 

Recommendations in previous Surveys	Action taken
Support implementation of carbon taxation at the EU level. Realign the excise tax rate on all fossil energy sources and products, based on their carbon content and other environmental externalities, notably by increasing the relative taxation of diesel. Remove several excise tax reliefs on fuel use.	No action taken. Work in progress.
Develop traffic management in urban areas, including traffic restrictions in city centres, parking fees and incentives to commute by public transport. Strengthen control of emission from older vehicles and stimulate the renewal of vehicles through adequate carbon pricing.	Following the Air Protection Act cities can introduce low-emission zones, but it is a voluntary activity itself cities. The MoE supports the purchase of vehicles with alternative propulsion for municipalities and regions and organizations set up by them, and municipal transport projects – e.g. City Mobility Partnership and is active in supporting the European Mobility Week. Since 1 December 2017, emissions measurement has been tightened by an amendment to the Act on road operating conditions (No. 56/2001 Coll.) as follows - the measurement record and its result are recorded in the online system (as well as in the technical inspection stations). The measurement system of Emission has changed since June 2017. Since 1/1/2018 Emission Measurement Stations have started taking photos of vehicles. Since January 2018, it has been no longer possible to issue a valid emission measurement protocol if an emission measurement station is not connected to the system.