Parliamentary elections 2017 - tax implications of the proposed changes

One of the main points of the election program of centrist movement ANO, the winner of the 2017 Czech parliamentary elections, is the shift of basic food and selected services to the reduced VAT rate of 10 %. Given proposal will save money to the workers households from CZK 732 to CZK 1,044 per year, households of retired people will save from CZK 545 to CZK 1,015 CZK per year, depending on the income quintile they are in. The collection of value added tax will be reduced about CZK 12.5 billion.The proposal to reduce value added tax on basic food, water and sewage and home care services can be considered as appropriate because these goods are essential to life or in case of home care services there is a clear health and social character. This positively evaluated proposal would reduce the collection of value added tax about CZK 5.1145 billion. Decreasing rates on these goods also maintains or even slightly improves net income differences between rich and poor households in absolute value.On the contrary, the tax proposal for the reduction of value added tax on catering and serving of non-alcoholic beverages served in restaurants and hospitality and the reduction of the VAT rate on draft beer can be considered as inappropriate. This proposal deepens the gap between net income among the richest and poorest households in absolute value. In a similar way can be assessed a reduction in the VAT rate on hairdressing, cosmetic and similar services.An annual growth of income from the old age pension to a person with an average old age pension paid in Czech Republic in 2018 will be reduced by CZK 463.06. The state budget will save about CZK 1.1135 billion in connection with the future lower growth of paid old age pensions.The current state budget expenditures will be reduced by about CZK 23 million due to the price decreases of goods and services. Overall, the impact of the tax proposal to the state budget is about CZK 11.3512 billion.