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Czechs Approve Tax Cut Touted by Premier as ‘Helicopter Money’

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Czechs Approve Tax Cut Touted by Premier as ‘Helicopter Money’

By Peter Laca

The Czech Republic will lower personal income tax next year as the government expects the move to help the economy recover from the coronavirus-induced recession.

The parliament approved on Friday the tax change proposed by billionaire Prime Minister Andrej Babis, who wants to broaden state stimulus beyond current measures such as paying salaries of furloughed workers and subsidizing small businesses. Critics say he’s using budget handouts to boost his popularity before next year’s elections.

Record Stimulus

Czechs plan to keep large deficit in 2021 to help recovery

The Czechs have increased state spending and allowed the deficit to swell to a record to soften the pandemic’s economic impact. Babis is counting on the tax cut, which he said will last two years, to boost household income and increase consumption as the crisis limits room for pay hikes.

“I simply want to make sure that people don’t to worry about their income and can spend,” he said in an opinion piece before the vote. “What we’re offering today by lowering the income tax to 15% - that’s our ‘helicopter money.’”

The country is grappling with one of the worst outbreaks of the pandemic in Europe. It shut most shops and restaurants and imposed curbs on movement of people, while key manufacturing factories remain running.

The Finance Ministry estimates that the change, which introduces a lower bracket of 15% and a 23% rate for top earners, will curb state income by about 80 billion koruna ($3.6 billion) next year. It says the net budget impact will be smaller because of the increased consumption it should spark.

The plan has drawn a rare criticism from central bank Governor Jiri Rusnok, who said it will create a long-lasting hole in public finances.

Finance Minister Alena Schillerova, nominated by Babis, defended what she called the “biggest tax cut in the modern history” of the Czech Republic, saying it will leave more money in the pockets of 4.5 million people.

“With this, we will support the economy when it needs it the most,” she said during the debate.

 

Πηγή: bloomberg.com


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