Government coalition agrees to launch pension reform by 2005

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Government coalition agrees

to launch pension reform by 2005

Interfax Europe, May 14, 2003

Prague - The Czech government coalition parties agreed on Sunday to launch pension reform within the next two years.

The new pension system, which is to be based on the Scandinavian model, should motivate citizens to work as long as possible. The reform will see the system transformed from a pay-as-you-go financed system to a savings-based one. All Czechs will have their own pension accounts. The retirement age will rise to 63 from the current 61 for men and 60 for women. The state will guarantee a minimum old-age pension of CZK 5,000 a month. The calculation of sickness benefits should change as of 2004 and the system should stop favoring those lower incomes, while people with higher income should receive higher sickness benefits. Benefits for the first three days of illness will be cut in half as of next year.

The government coalition also reached a preliminary agreement on changes to the tax system. Corporate income tax should be reduced from the current 31 % to 28% in 2004 and 24 % in 2006.

The government also agreed to cut gradually cut the public finance deficit from this year's 6.1 % of GDP to 4 % of GDP in 2006. This should be achieved mainly by a slower indexation of pensions, lower public sector wage growth, tougher conditions for early retirement and smaller state support to home-building savings plans.

Some economists criticized the government's plan to curb the public finance deficit to 4 % of GDP as not ambitious enough.