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More than two decades ago, in 2003, the Czech National Bank revoked Union Bank’s license and the court then sent it into bankruptcy. It was the last significant shake-up in the Czech financial sector, since then any problems of financial institutions no longer have a macroeconomic dimension, which was also confirmed by the run and the subsequent end of Sberbank.
Banks, with their stability and capital equipment, on the other hand, provide one of the buffers against shocks brought to the Czech economy by errors caused by us or shocks from the outside.
They proved it during the drastic upheavals of the financial sector in advanced economies that followed the fall of the American giant Lehman Brothers, or during the covid pandemic. And perhaps precisely because the vast majority of Czech politicians have not even experienced or forgotten what not only economic, but also political costs have significant problems in the banking sector, proposals for the introduction of a sectoral tax appear on the table with justifications that cannot stand up in any more professional debate .
Others have already talked about why banking or any other sectoral tax is a really bad idea, Miroslav Zámečník probably paid the most attention to the topic in the media. It’s simple applied economics, so it’s no wonder that the part of the coalition of five, which for a long time shows a complete disregard for any knowledge of economics, came up with the idea – i.e. Vít Rakušan, the leader of the Starostová.
However, the justification of this option is also worth paying attention to, which is often led, among other nonsense, by formulations that profits flow abroad that could be used in the Czech economy.
I will therefore leave out a more detailed analysis of the reasons why some, including politicians, came to the senseless feeling that banks escaped the expected taxation under the so-called “emergency tax” by lobbying to create a “hole” in the relevant law.
They did not escape. The creators of the tax, i.e. the Ministry of Finance, the minister and the government, did not notice the long-existing possibility of banks to reduce the tax base for the emergency tax by using one class of government bonds that has existed for many years.
Incidentally, it can be noted that after the draft law on the “emergency taxation” of the profits of certain types of corporations for last year in 2022, those banks whose shares are traded on the free market – on the supervisory board of one of them I have the pleasure of serving as its vice chairman – , reflected the increased tax in their assumptions about the creation of profit for shareholders for the year 2023, only to notice the escape possibilities based on the advice of their tax advisors, who studied the law in detail, or the behavior of their competitors.
The problem is not the money that is not spent here
However, it is much more serious to argue with the unrelenting feeling not only of Czech politicians, but probably also of the majority of the Czech public, that the problem in the current macroeconomic situation is money that is not spent here, but abroad.
That is not the case, which is really good to keep reminding ourselves. Not only because the Czech state is also under the leadership of the coalition of five, as it has been reminding us more and more recently (let’s remember, for example, the acquisitions inspired by the Ministry of Industry and Trade), unable to invest in something more meaningful, but above all because the lack of demand is not a problem of the Czech economy.
On the contrary, until recently we were dealing with an inflationary wave, which was borne, among other things, by unsatisfied demand. We still have exceptionally low unemployment among developed countries, the Czech economy has absorbed several hundred thousand citizens of Ukraine without problems for the labor market, but the “people” are still “not”.
Another thing is that the performance of the Czech economy is “better”. But no money that will be spent “extra” with us can change that. In order for their spending not to bring primarily price increases, there is a lack of “people”, production resources.
And the reason for this inefficiency of the Czech economy is, of course, primarily the poor performance of the Czech state – and not the lack of money.
For example, municipalities, cities and regions really have money for many things, but at the same time we hear complaints that they lack “resources” for example for “affordable housing”. While this term can be understood as apartments, in the best case, for policemen or teachers who have joined the right party and which one of the safest countries in the world, with a decreasing ratio of pupils to teachers and increasing assistants, of course, absolutely needs…
But nothing is free, even the sectoral tax on banks will gradually be transferred from bank owners to their clients. At the same time, however, it will undermine the owners’ interest in treating Czech banks in a truly responsible manner, investing in them and enabling their development, in short treating them as an asset that makes sense to own. And it will have costs for everyone.
However, I understand that in the horror of the upcoming elections, the Mayors and other politicians may not care. They know that their electorate will certainly not reflect on problems of this type in the next two years.
If we want to move forward, we don’t need new taxes, but a rather different functioning of the Czech state. The way to it could be through territorial reform, i.e. reducing the number of different territorial entities. But it is not so difficult to imagine which political force in the current coalition of five really cannot afford a debate about something like this.
