30th March 2020
Comments on government employment support and table comparing government net revenue between support programs and unemployment payment
Largescale unemployment due to the temporary effects of the coronavirus would slow or even reverse the growth of Czech wages. Companies will more likely retain staff than add staff during the recovery. The impact of unemployment on wages, therefore, will spread throughout the economy and retard economic recovery.
To avoid such an impact, and to secure people’s livelihoods during the still undetermined length of the crisis, we need to socialize the costs of containing the virus (spreading the cost over all of society). The best means for doing this is through strong government employment support now that can be paid through targeted taxes in the future. This could be supplemented by a voluntary national fund established with the sole purpose for paying down the debt incurred by the employment support program.
When establishing the amount the government should compensate wages, the aim should be to retain the existing levels of salaries as much as is possible. The government will need to weigh companies’ ability to pay and the net government revenue from payroll and income taxes offset by the government compensation. The net cost of the employment program (taxes collected minus government contribution) should be equal or greater than the cost of paying unemployment. (at table estimating government net revenues is attached).
Immediately, that would require lifting any cap placed on current Ministry of Social Affairs proposed scheme for all five categories of support. For regime B, employer social security contributions could be waived for three months. If the crisis continues for several months, we recommend a simplified scheme with qualification based solely on revenue loss and the percentage of wage compensation determined by the percentage of that revenue loss.
We thank you for your consideration, and are ready to work with you to achieve a strong, rapid recovery from the impact of the coronavirus.
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