Economic liberalisation is necessary

December 18, 2003

Free Market Foundation

Lawmakers agree that for the economy to grow, corporate taxes must be cut. But wait! This isn’t news out of Washington. It’s from Prague. It seems that the former Soviet bloc nation is employing the lessons that we’ve forgotten, says Investor’s Business Daily (IBD).

In the Czech Republic, lawmakers are moving to cut corporate taxes to 24 percent from 31 percent.

Income taxes may also come in for a trim and Czechs also want to cut back on their excessively generous welfare system, the likes of which have smothered Eastern European economies for decades.

The official reason for cutting taxes and reining in entitlements is to get a handle on a budget deficit that in recent years has hovered around 5 percent of GDP. But there’s a bit of tax competition at work as well, says IBD.

Czech lawmakers were no doubt stung by automaker Hyundai’s decision to reject the Czech Republic as a site to build a new plant in favour of neighbouring Poland and Slovakia.

The latter created a friendlier business climate by cutting corporate taxes to 19 percent and laying out plans for a 19 percent flat income tax to be enacted in the near future.

Consequently, if Prague wanted to improve the Czech economy, the only choice was to counter Slovakia’s tax initiative. To be more competitive for the next opportunity, lawmakers seem to realise that greater economic liberalisation is necessary, says IBD.

Source: Editorial, Czech This Out, Investor’s Business Daily, December 5, 2003.

For more on International (Taxes and Growth) http://www.ncpa.org/iss/int/

FMF Policy Bulletin\9 December 2003