Economist: One has two swimming pools, the other lives in a studio apartment. They get the same help

Economist: One has two swimming pools, the other lives in a studio apartment. They get the same help
Economist: One has two swimming pools, the other lives in a studio apartment. They get the same help

“Once someone comes into the market and starts dictating what the prices should be, it can create a shortage. Or it may mean that we will have to spend a really huge amount of money to maintain the price,” said an economist from the IDEA Institute at CERGE-EI, who is also an external adviser to Minister of Labor Jurečka (KDU-ČSL).

It bothers Pertold that by capping electricity prices at 6 and gas prices at 3 crowns per kWh, the government helps even those who do not need it. “It is again a very general measure. Whoever has two swimming pools will receive the same help from the state as someone who lives in a studio apartment,” he said in an interview that you can watch in the video.

On the one hand, the cabinet dares units of billions of targeted aid, on the other hand, it will release hundreds of billions across the board, says Pertold: “The government is trying to target aid, but in the meantime it will itself push for blanket aid for 130 billion.” This diminishes the beauty of targeted tools.”

The core of targeted assistance should be a housing allowance. Despite the significant simplification of the forms, which have been possible to submit online since the summer, the number of applicants has practically not increased yet. According to Pertold, it may also be because the contribution was low.

According to estimates, about 800,000 households are entitled to it, but only 170,000 of them use it. However, Labor Minister Marián Jurečka (KDU-ČSL) intends to raise the ceiling of the allowance, which prevents people who are not at risk of poverty from drawing it.

“People will be able to get more money. They will see that they won’t just get a few hundred, but a lot more. I hope that it will have this stimulating effect,” says Jureček’s advisor. The new setup will open the way for up to 400,000 people to contribute, he said.

On the other hand, there is a lot of interest in the next benefit, which was launched by the Ministry of Social Affairs and Health, a five thousand per child allowance. According to recent data from the Ministry of Internal Affairs and Communications, “Jurečkovné” is granted to 769,379 households. That’s roughly 85% of the 1.1 million people eligible for this benefit.

The government is using the slogan “We will not let you down” at the moment. Does this apply to everyone?

This political slogan applies de facto in every country. In the Czech Republic, something works better, something worse. The government is mainly trying to improve access to housing allowance, which should be a key tool to help households.

Journalist Petr Šabata wrote that the government takes from everyone and gives to everyone. Rich and poor. Do you think that is apt?

As the social system is not very flexible, the government often resorts to very general measures. It was true during covid and it is true now. We just know that energy prices will be capped, which is just an example of the very widespread, very expensive aid. Even planned so-called savings tariffs or discounted tariffs are also de facto blanket aid.

And with the second part, that this government takes from everyone, do you also agree?

Income tax for employees is very similar for low-income and high-income earners. If we add up the tax and social and health contributions, then it applies. If we look at the entire labor market, the effective taxation of the self-employed is significantly lower than that of employees.

Philip Pertold

IDEA Deputy Executive Director, Researcher and Program Coordinator. In 2013, he won the Neuron Impulse Prize. He also worked as a researcher at Aarhus University in Denmark, at the World Bank and at the University of Illinois. External adviser to the Minister of Labor and Social Affairs, Mariana Jurečka.

For you, in the crisis we are experiencing now, would it make sense to tax the rich more?

It would make a lot of sense if the taxation of the super-gross salary, which drained a hundred billion from the budget and did not sufficiently help those with low incomes, was not abolished.

But the political space is not there at the current moment, when costs are rising for de facto everyone. The idea that politicians are going to come up with, “Now we’re going to raise income taxes for this and that group,” is just delusional.

Gas can run out sooner than we think

Of course, most people burn energy. The government has announced that it will therefore cap the prices of power electricity at 6 crowns and gas at 3 crowns per kWh, including VAT. According to Finance Minister Zbyňek Stanjura (ODS), it should cost some 130 billion crowns. I know you are not an energy expert, but how would you evaluate this move as an economist?

I see several problematic aspects of this. The first is that this is again really a very broad measure. Anyone who has two swimming pools will receive the same help from the state as someone who lives in a studio apartment. The second thing I worry about is the impact it will have on people’s willingness to save, especially companies. I was expecting something similar to Austria, where the price was capped at, let’s say, 80% of the usual consumption of the collection point.

Prime Minister Petr Fiala (ODS) has not yet spoken about such a thing.

It’s not talked about at all. For the rest, that is at 80% and above, consumers in Austria pay a significantly higher price, whether market or otherwise.

So do you think that capping the price could screw up consumption?

We are facing a winter with a lack of energy. And we always have to measure consumption against the current offer on the market. The supply on the market is limited due to gas problems. We are trying to adapt to that demand. And that adjustment mechanism is usually price.

The government is de facto saying: “The price will be this and we hope that the demand will meet the supply.” It probably will, but the question is, at what price? The government will have to somehow compensate the energy suppliers for the difference. So that’s why we have a huge uncertainty about how much it will even cost us. It can really cost us a lot of money.

Even more than the 130 billion that the minister talked about?

I didn’t count it. However, what, for example, David Marek (chief economist of Deloitte, editor’s note) said on Twitter, according to current prices it would be up to 200 billion. We don’t know how prices will move further.

You say that the government is playing with matches in the dry forest. Is it because of the incalculable costs of capping energy?

Once someone comes into the market and starts dictating what the prices should be, it can create a shortage. Or it could mean we’ll have to spend really big bucks to maintain that price. Those are the main risks I see there.

Can we come to the point that we will have little gas during the winter?

We all hope not. But of course it can happen that we run out of gas sooner than we think.

Jurečkovné caught on. He was pumped by whoever could

Let’s move on to the additional help that the government is offering to people affected by this not only energy crisis, but also the price crisis. Let’s start with the five thousand allowance for children. How many people have already applied for the five thousand?

Those who already receive a benefit, typically child benefit, go automatically. That is approximately 160 thousand households. And the second part is those who actively asked for it. There we are somewhere over 500 thousand. So, in total, over 700-770 thousand households should have received the allowance (so far, over 4.78 billion crowns have been issued).

Which is a high number. In Czech conditions, where typically significantly fewer people apply for the typical benefits than are actually entitled to them.

How big, for an idea, is it from families who are entitled to the allowance?

According to our estimates, this is 85% of families.

The situation is a little different with housing allowances. This can be obtained by anyone who spends more than 30% of their net income on rent, energy and water and other services, more than 35% in Prague. How dramatically did the number of claimants rise after the government raised the caps on this benefit?

He rose a little. But unfortunately not by as much as we would imagine.

I think about ten percent. The number of requests since January is more or less stable, but it must be said that the data is not completely updated, we will see what the digitization that took place in July will do with it.

Currently, it is really much easier to apply for a contribution. And from sociological data, it also appears that people who are actually entitled to the allowance have expenses higher than the 30% or 35%, so they think they are not entitled to it. So I would appeal to households that are getting into some problems to really recalculate their expenses versus income.

The housing allowance has been significantly simplified

Is there a calculator for this?

You can calculate how much you could get on the Department of Labor website.

In the summer, the government made it possible to submit an application online. When I tried it, it still seemed unnecessarily complicated. As part of housing costs, one must, for example, calculate the cost of operating an elevator or lighting common areas. What do people have the biggest problem with when applying?

These services have been simplified. If a person is renting, he certainly does not need to prove it, a confirmation from the owner that he paid so much for the services is sufficient. They must document the energy separately, yes. If it were up to me, I would completely trivialize the request.

The state would certainly not have to demand housing expenses at such a frequency. It has already improved from four to twice a year. I would simplify it to once a year. I would certainly simplify the reporting of income for individual household members.

At the same time, you still have to enter information that the public administration already has, it just has it in other databases.

We have a deep distrust of the Czech state as a society. And there is little political pressure to connect databases in the state administration. Progress is slow here.

Minister of Labor Marian Jurečka announced that he will increase the ceilings of the housing allowance. So will there be more people who can reach the money? Or will they get more money?

In theory, the number of people eligible for the allowance will remain the same. The regulations change the maximum amount you can get.

People will get more money for housing

And has it been insufficient so far?

In my opinion, it was largely insufficient. But if the new ceilings are combined with a sufficient information campaign, the allowance will be more attractive. People will be able to get more money. They will see that they won’t just get a few hundred, but a lot more. So I’m hoping it will have that stimulatory effect.

How does this play in with the giant blanket aid the government has announced?

These benefits are structured in this way in order to target the aid. And we want to target aid so that we don’t have to give tens of billions for general aid. So the government is making progress in trying to improve that targeting, but in the meantime it’s being pushed, or pushing itself, to blanket aid for maybe 130 billion. This slightly reduces the beauty of the targeted tools. I’m not sure if the overall help will be too much.

So when the Housing Benefit caps are raised, how much do you think the number of people who could claim Housing Benefit could increase?

At the moment, according to our estimates, up to 20% of households can apply for housing allowance, that’s roughly 800,000 households. That’s really a lot. In reality, however, about 170,000 households use it. Of course, some households have their own savings, or they would only have a very small amount of money in the calculation.

But the number of people who should get that allowance can double. The objective situation leads to that. I firmly hope that, thanks to the simplification and, perhaps, the automation of the application, it will soon reach those 400,000 households in the near future.

The article is in Czech

Tags: Economist swimming pools lives studio apartment

NEXT He started a business when he was young, now he has money and makes millions