The consolidation package currently under discussion increases the tax or levy burden. It is clear that higher taxes in themselves cannot be described as an incentive to do business. However, I am convinced that the consolidation package, provided that it achieves its objectives, i.e. the stabilisation of the public budget, may also have some positive effects on the business sector. I am making this assumption based on the fact that a significant public budget deficit contributes to a price level rise in the economy. The consolidation of public finances will, therefore, not only stabilise public finances, but also indirectly reduce inflation. In the short term, the consolidation package will thus have a negative impact on business activity and lead to a slowdown, but in the long term, it will contribute to a smooth running of the economy without huge price dynamics, and will thus have a positive impact on the economic situation of companies. This has a possible positive macroeconomic benefit, but perhaps somewhat paradoxically, there is also a microeconomic “positive”. Taxes are a cost item for businesses. Thus, with the same income, as a result of higher taxes, entrepreneurs have to think about what else they would save on, looking for reserves in how their business work. They may also try to earn more to pay the higher taxes – for example, through higher revenues due to the higher volume or quality of goods or services offered. Both paths lead to greater efficiency or productivity of the business. However, not every company has a realistic opportunity to reduce its costs or increase its revenues over a period of months, which is why I would generally be reluctant to interpret tax increases as a stimulus for the development of a company´s economic activity. A top-quality legal system, effective digitalisation, meaningful regulation, and appropriately set rules, processes and partnership relationships on the state-business axis are necessary prerequisites not only for competitiveness and the increased attractiveness of domestic companies doing business in the Czech Republic, but also for the inflow of foreign investors.
Zdeněk Zajíček, President of the Czech Chamber of Commerce
