European Semester Spring Package: Czech Rep is enjoying an economic upswing, but increasing tax system complexity is a concern and certain regulatory burdens are deterring further investment
As economic growth accelerated significantly in 2017, the Czech Republic is in a good position to address remaining structural challenges. The Czech Republic is enjoying an economic upswing. Labour market indicators set new records but at the same time signal limits to future growth. Inflation has moved above the central bank’s 2.0 % target. These are conclucions of the European Semester report published by the European Commission on 23 May.
The Czech Republic has made some progress in addressing the 2017 country-specific recommendations, the report says. The country has made limited progress in addressing the long-term sustainability of public finances. Some progress has been made in improving the anti-corruption and public procurement frameworks and in streamlining procedures for granting building permits. The range of e-government services has expanded and the quality of R&D has slightly improved. Some progress has also been observed in fostering employment of under-represented groups.
The Czech Republic has either reached, or is on track to reach, its Europe 2020 targets in most areas. These include poverty or social exclusion, employment, renewable energy, greenhouse gas emissions and tertiary education. More action is needed to reduce the increasing early school leaving rate, improve energy efficiency and reach the R&D target. The Czech Republic performs relatively well on the indicators of the Social Scoreboard supporting the European Pillar of Social Rights, while challenges remain. The labour market is strong, yet the low participation in employment of women with small children and of vulnerable groups remains a challenge.
Key structural issues analysed in the report, which point to particular challenges for the Czech Republic’s economy, are the following:
- The increasing complexity of the tax system is a concern.
- Long-term fiscal sustainability worsened and age-related expenditures are causes for concern
- Housing prices are increasing rapidly against a backdrop of high demand, constrained supply and regulatory obstacles
- Certain regulatory and administrative burdens are deterring further investment. Pending issues related to building permit procedures for households were in part addressed by the amendment of the Construction Act. Payment practices worsened in 2017 and the costs of resolving insolvencies remain above the EU average.
- Steps were taken to improve the public procurement framework and the anticorruption agenda. While setting up joint procurement procedures remains a major challenge, corruption is an ongoing concern that has a negative impact on\ the business environment.
- Despite high demand for labour, certain groups continue to be under-represented in the labour market. Gender inequalities in terms of pay and employment remain high despite recent measures that have made parental leave more flexible and increased the number of childcare facilities.
- The attractiveness of the teaching profession remains low in spite of recent salary increases. Education performance continues to be strongly affected by the socioeconomic background of students.
- Whilst the Czech economy continues its shift towards more knowledge-intensive activities, several bottlenecks still hamper the R&D system. These include emerging shortages of skilled human resources, the low level of public-private cooperation and the relatively low performance of the public science base.
- While foreign R&D funding is trending upwards, domestic firms reduced their R&D spending.
- E-government services are being enhanced, but remain below EU average.
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