9th July 2010

K9 talks are over: the stage is set for reform.

Talks among representatives of ODS, TOP 09 and Veci verejne (the so-called 'K9' group - 3 representatives per each political party) are over.

Outcomes of K9 negotiations follow:

- Parties agreed that public budget deficit should decrease to 3% of GDP by 2013 at the latest. Fiscal policy of the coalition government should lead to balanced public finance in 2016.
- State budget deficit should not exceed Kc140bn in 2011. The government expects the deficit to reach Kc135bn (4.6% of GDP) in 2011.
- Corporate and personal income tax rates will not change. A second VAT rate is not planned. New Income Tax Act will be proposed in 2012. Tax advantages for persons with monthly income exceeding Kc140 000 could be eliminated. Czech tax system should become simpler and more transparent.
- Pension reform will be based on the outcomes of the so-called Bezdek Commiittee. New pension system will be based on several pillars and should include elements of pay-as-you-go and fund systems.
- The Government’s National Economic Council (NERV) will be re-established. The council should provide expert and analytical services throughout the preparation and implementation of pension and tax reforms and propose measures to achieve stability of public finance.
- The Council of Economic Ministers will comprise Prime Minister, Industry and Trade Minister, Labor and Social Affairs Minister, Health Minister and Chief Expert Consultant (Martin Říman of ČEZ).
- National Budget Council will be formed to monitor budget expenditures and scrutinize proposals that influence budget.
- Cuts in expenditures will include wage cuts by 10% for employees in public instiutions (excl. teachers), wages of MPs will be cut by a further 5% and MPs’ compensations will be taxed. Financial contributions to political parties (related to votes, mandates, operational costs) will be gradually reduced by 2014.
- Higher tax rate (20%) will be applied on lotteries, hazard of all kinds. Exceptions in this field will be eliminated.

- Each piece of new legislation will be analyzed from the point of corruption risk/potential.
- The government, regions and municipalities should disclose information about voting on large-scale public contracts.
- Details of public tenders such as tender conditions, contracts, supplements, invoices, names of those responsible on the part of procurement agency, names of members of committees, etc. will be available online. Over-limit public tenders should be processed centrally.
- Members of committees processing bids for public contracts or applications for subsidies, grants, assets will be selected by drawing lots. Data on all public tenders and contracts will be archived electronically. Bidders should disclose information about their ownership structure. Bidders with unknown/unclear ownership structure will not be allowed to participate in tenders.
- Corruption resistance of public officers will be tested. The legal institute of ‘fictious’ bribery will be introduced and the legal insitute of target witness should be extended.
- The government will monitor the implementation of corrective measures proposed by the Supreme Audit Office of the Czech Republic (NKU).
- draft Act on Lobbying will be prepared that should include the definition of lobbying, lobbyists, a lobbying contact, as well as introduction of obligatory registration of lobbyists, sanctions for violation of law, etc.
- Public authorities should be obliged to create and disclose their own ethical codes. Public officers appointed to positions in management or supervisory boards or other top management positions in (fully or partially) state-owned companies should be experts and their compensations should be disclosed.
- Further extension of e-Government is planned (extension of CzechPOINT services, finalization of the public registers project – a central database of information about citizens and businesses).
- Supreme Audit Office of the Czech Republic (NKU) could audit how municipalities, regions and other public institutions manage public finance.
- Amendments to the Commercial Code, Civil Code, Civil Process Code, and Criminal Process Code (to provide for disclosure of information on victims if this is in public interest – ‘nahubkovy zakon’) are planned. Draft act on responsibility of legal persons should be prepared, so that the UN Convention against Corruption can be adopted.

- Fixed-term contracts and working time will become more flexible. The government will promote alternative employment models. The cap of 150 hours of work per year under a DPP contract (dohoda o provedeni prace) will be extended to 300 hours of work per year. Severance pay will depend on the length of employment (severance pay should amount to 1 month salary after one year of employment, 2 months salary after 2 years of employment, 3 months salary after more than 2 years of employment).
- Employers will be obliged to notify authorities of employment of a new employee one day prior to the start of the employment.
- Relief (Kc7,200 per year) on social security payments is planned for employers who employ under a part-time contract persons such as parents with children aged less than 6, disabled persons or perons taking care of disabled individuals.
- Sick leave pay will remain the same in the first two months of sick leave. Employers will pay for 12 days of sick leave (instead of 7).
- The project of the Single Collection Point for taxes, social security and health insurance payments will be finalized by 2013.
- Suppliers who paid VAT, but their clients have failed to pay for goods and/or services delivered (in the long run) will get the VAT paid back. The government will push for a change at the EU level - VAT should be paid only after invoice was paid.
- Starting and winding up a busines should become simpler. Public officers should not ask their clients to go and obtain certificates/other official documents from other public officers. A sole trader winding up his/her business will not be asked to submit further official documents. In case a sole trader is winding up his/her business, invoices unpaid for more than 4 years will not be taxed.

- Cap on lignite mining will be preserved.
- New energy strategy will be drafted.
- Nuclear energy will be promoted – construction of new blocks of the Temelin nuclear power plant and modernization of the Dukovany plant is planned.
- Promotion of market priniciples in the energy sector – more competitiveness, diversification of energy sources. Lower energy intensity (i.e. lower ratio of energy use to GDP) will be promoted.

- Transport:
- Audits will be carried out in order to cut costs of infractructure construction.
- Implementation of measures to reduce construction costs.
- Launch of the e-vignette system is deffered.
- Launch of toll collection for trucks on roads of lower categories is planned.

- Export promotion – loan guarantees for small and middle-sized businesses by the Czech-Moravian Guarantee and Development Bank (CMZR Bank, Českomoravská záruční a rozvojová banka) and the Czech Export Bank (CEB, Česká exportní banka) should be extended.
- No specific date was set for EURO adoption. Meeting Maastricht criteria is the first step on the road to balanced public finance.

- More effective EU funds drawing. A central information and consultation point for drawing EU funds should be established.

- Reform of health care system should commence in January 2012.
- Re-introduction of regulatory fees - Kc30 per prescription, at least Kc100 per person per day in a hospital (instead Kc60), depending on the number of patients in a room. Kc30 fee per visit to a GP´s surgery will be preserved, but fees per visit to a specialist without a recommendation from a GP should increase.
- Standard and above-standard helath care services will be clearly defined. Standard health care services will be fully covered from health insurance. The difference between the price of a standard and above-standard service will be paid by patient. The system implies creation of commercial health insurance. Each health care services provider who has a contract with a health insurance company will be obliged to provide standard health care services.
- The system of multiple health insurance companies will be preserved (the number of health insurance companies will be reduced from 8 to 7). Tight supervision of health insurance companies is planned to better protect the insured.
- Sick leave payments will be transformed into sick leave insurance that will be administered by health insurance companies.
- Classification and evaluation of health care services – the system based on points will be replaced by a system based on real prices.
- Wage categories in the health care sector will be eliminated.
- Promotion of e-Health.
- Prescription of an active ingredient rather than a specific medication. This gives patient a choice between similar medications. In each reference group at least one medication must be fully covered from health insurance.
- Introduction of transparent waiting lists for individual types of health care services.
- Procurements by state health care facilities should be centralized.
- More rights to patients.
- Public discussion on health care reform will be lead by an expert committee consisting of representatives of all political parties present in the parliament.

Members of the American Chamber of Commerce in the Czech Republic