The Czech Republic's social condition is tense. Instead of addressing dissatisfied citizens, the administration is pursuing Thatcher-style changes.
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| Far rights protest in Czech capital Prague, 2022 |
The EU's admission of the Central and Eastern European nations will be commemorated next year on its twentieth anniversary. The most recent economic events, however, are pushing one of the linked promises—that is, the promise of living circumstances that are more in line with those of the "old" EU countries—further into the future.
While prices for many everyday goods and services have long since reached and in some cases surpassed western levels due to market liberalization and integration (it is absurdly worthwhile to drive across the German border to buy groceries from the Czech Republic, for example), wages and thus purchasing power continue to be far too low.
This is due, in part, to the way the region's economy was reshaped following state socialism, which included a shortage of indigenous capital, the sale of many assets to foreign investors, the attraction of extra financiers by tax incentives, and the comparative advantage of cheap wages. Finding a way out of this structural bind is proving to be very challenging.
As a result, despite working full-time, a sizable portion of the population, including the upper middle class, currently lives in unstable economic circumstances. The most current wave of inflation related to the conflict in Ukraine occasionally reached 20% in the Czech Republic last year, and it has yet to level off below 15%, which is still much higher for specific categories of items needed for survival, like food.
In addition to the objective causes, such as the war in Ukraine and the corona pandemic, this is mainly due to the concentrated power of the large foreign corporations on the Czech market - the sale of food, for example, is in the hands of a few foreign supermarket chains - and inaction the government, which out of ideological conviction relies on the - failing - market forces even in such a situation. This has further exacerbated the long-term structural problem of low purchasing power.
The instrument of the minimum wage that provides a livelihood, which is based on so-called living wage approaches and whose current amount was released by an expert platform in April, makes a very impressive case for this issue. According to this, a life in the Czech Republic that includes the possibility to participate in basic social and cultural activities or the ability to accumulate small savings on top of the fundamental necessities, such as shelter and food, presently requires at least roughly 1,750 euros gross. It costs an extra 100 euros in Prague, the country's capital.
However, in the Czech Republic, two-thirds of employment do not pay this amount of money, and because of inflation, the proportion of underpaid jobs has doubled since the previous year.
A sizable portion of the population is in a social situation that, more often than not, necessitates official help and involvement. Demonstrations with corresponding demands, which regrettably were organized particularly by extremist groups and in which valid requests are mingled with extremely problematic ones, are relatively common in a nation where demonstrations are often uncommon. For instance, in September 2022, some 80,000 people gathered in Prague's center to demonstrate against escalating energy costs and the demand to halt aid to Ukraine.
The current Czech administration, which was elected in 2021 and celebrated its triumph over the scandal-plagued tycoon Andrej Babi, is taking a very neoliberal stance in this matter, a fact that is sometimes disregarded even by progressives overseas. Surprisingly, she virtually exclusively creates more duties for the staff rather than providing respite or assistance.
The administration unveiled a comprehensive, modest plan to streamline the federal budget as well as a pension reform on May 11. The Czech Republic's national debt is still relatively modest, but fresh borrowing is occurring at one of the fastest rates in Europe, prompting constant warnings of a "Greece scenario". Along with modest increases in corporate income tax and real estate tax, many previously discounted goods will now be subject to VAT; numerous income tax deductions, such as those for union dues, will be eliminated; new employee participation in health insurance will be implemented, which will lower their net income; and the retirement age will rise, to name a few initiatives.
The narrative with which the reform was presented is also significant – the steps are no alternative to avert state bankruptcy and a complete state collapse. They now want to do everything possible to explain the lack of alternatives to the public with regard to these uncomfortable cuts.
It is yet unclear how all of the recently stated measures will really be put into action. The state budget reform is mostly being paid for by the workforce, while the government appears to be risking drastic interference in the lives of the populace even for modest savings. The package is also thought to be inflationary and will result in more price hikes.
What stands out in this situation is the extensive protection of business owners, renters, substantial owners, and heirs who have little role in the creation of the state budget. Contrary to the already overworked personnel, there is definitely potential for improvement here because the Czech Republic has very low or no matching taxes. For instance, even when the real estate tax is quadrupled, residences in the greatest locations will still only be subject to yearly payments of double-digit euro sums. Living costs will increase overall because there was no provision for advancement, but renters who own many units won't be too burdened.
Currently, the unions are speaking out against the change. All of the MKOS confederation's member associations issued a strike call on May 15 that may be followed by a nationwide strike. However, given that their rally against the high prices in the fall only drew a small number of attendees compared to the right-wing populist gathering a few weeks before, this might prove to be a strategic error. It is still unclear how much pressure the recent actions would generate and whether they will genuinely weaken the unions' position.
Given the current weakness of social democracy—ominously, the sole parliamentary opposition at the moment is the Babi party ANO and the far-right SPD—this would simply serve to exacerbate the already volatile socioeconomic and political environment, benefiting populists of all stripes. Polls show that both parties could presently form a majority government, although the parties in power now have already lost this advantage.
Despite its protestations to the contrary shortly after the election, the administration continues on its anti-social track despite even this perilous combination. Although one is aware that populism thrives on social issues, one nevertheless wishes to win back the disgruntled and incensed citizens. However, there is no longer any indication of it since the ruling parties are too mired in the austerity rationale that has already been abandoned elsewhere. In the next parliamentary elections in 2025, there is an increasing risk that radical groups would gain control at the expense of moderate forces.
The author Katerina Smejkalova is a renowned Czech political scientist and researcher at FES' Prague branch.