Czech Republic Economy
Jerric Allison, Jonathan Clark, Rebecca Glenn, Mary Claire O’Mullan, Jessica Sharp
Once the heart of the Austrian-Hungarian Empire, the Czech Republic has undergone many changes over time to allow its industries to become some of the fastest growing in the world. The Czech Republic fell under Communist rule in 1948 until the collapse of the Soviet Union in 1989.The collapse of Communism wreaked havoc on Czechoslovakia’s economy. As a result in 1993 the Czech Republic divided into two nation known today as the Slovak Republic and the more familiar Czech Republic. Over the next decade the Czech Republic struggled to transform its economy. To help spur economic growth and development the Czech Republic officially became a member of the EU in May 2004. Among other advantages, becoming a member of the EU meant restrictions on trade were lifted. Since that time its economy has faced ups and downs. From approximately 2004-2007 the Czech Republic experienced fairly steady and rapid growth. Similar to the United States however, the Czech Republic experienced an economic downturn in 2008 to 2009. The economic struggle was mainly the result of the U.S recession which had a domino effect on countries around the world. Currently, the country is experiencing a slow but steady increase in GDP since 2013 (29,800 in 2013 to 31,500 in 2015). The inflation rate has 0.4% for the last two years, which is below the 1-2% growth economist would like to see. Probably the biggest growth the Czech Republic has seen is that of its private sector. When under Communist rule over 95 percent of industries were controlled by the public sector, or government. Today, the percent of industry controlled by the public sector is less than 20. With many industries experiencing growth, the Czech Republic has become one of the most industrialized economies within Central Europe.
Although the United States has been established as an industrialized economy for some time, its economic growth over the past several years is similar to the Czech Republic. While the U.S has undergone a decrease in the rate of inflation (1.6% 2014 – 0.2% 2015), the US has experienced slow but steady growth in GDP over the past three years (53,600 in 2013 to 56,300 in 2015). Moreover, the private sector in the U.S is rebounding since the 2008 recession. From 2010-2012 jobs in the private sector increased by four percent, while jobs in the public sector saw a two percent decrease.
While the Czech Republic has undergone more economic transformation throughout its history when looking at GDP, inflation levels, and private sector growth, the U.S and Czech Republic are not that different.
By definition, a bureaucracy is a government system in which a majority of the important decisions are made by state officials and not made by representatives that have been elected into office (Webster). It has been claimed that the Czech Republic has one the most controlling bureaucracies of all. It is quite similar to the United States in how everything requires abundant amounts of paperwork. In the Czech Republic it seems like whatever an individual would like to do, they have to make sure that proper identification cards, personal numbers as well as permits and licenses are always with them. There are also lots of strict rules and regulations that must be followed at all times. All the paperwork can be very intimidating to individuals from other countries, but for a citizen coming from the United States to work in a restaurant, the change would not be too difficult. The individual would already be used to having to keep a paper trail, they would just have to learn the Czech Republic’s language and what each form is the equivalent of. The size of the Czech Republic’s bureaucracy is quite extensive, but that is just because paperwork, stamps and identifications are required in all areas of everyday life, quite similar to everyday life in the United States.
According the 2015 budget, the Czech Republic spent more than they earned. They made a revenue of $72.21 billion, but accumulated $75.56 billion in expenditures. This is quite a difference compared to the revenue of $3.251 trillion and the expenditure of $3.677 trillion that the United States accumulated in 2015 (CIA Fact Book). This indicates that both countries have a deficit, not a surplus in their budgeting.
On the other hand, Foreign direct investment, or FDI, is when one business enterprise in based in one country, but has a controlling ownership in a business in a different country (Webster). The Czech Republic has received large amounts of Foreign Direct Investments. The reason for this is that it has helped the economy to grow at a quicker pace. This also creates more jobs for individuals living in the Czech Republic and increases the amount of domestic consumption all at the same time. Foreign Direct Investment really helps the Czech Republic because it is such a small economy that prospers on exports (Department of State).
The amount of goods that the Czech Republic is exporting has increased from $110.5 billion in 2014 to $133.8 billion in 2015. There has been an increase in the amount of machinery and transport equipment that is being exported. There has also been a steady climb in the amount of raw materials, fuels, and chemicals being exported. Germany is the top export partner to the Czech Republic, followed by Slovakia, Poland, UK, and Austria. The United States on the other hand, decreased their amount of exports by approximately 3.5 million dollars from 2014 to 2015. The United States also exports more agricultural products and industrial supplies than anything else (CIA World Fact Book).
In addition to, one thing that has helped the economy is the tariffs on imports into the country. This has to do with the fact that the Czech Republic is a landlocked country. Import duty and taxes are due when importing goods into Czech Republic from outside of the EU whether by a private individual or a commercial entity. This protects the Czech Republic from being exposed to unnecessary violations. The import duty and taxes payable are calculated on the CIF value, i.e. the sum of the value of the imported goods and the cost of shipping and insurance. These calculations are only a few key reasons to help allow the Czech Republic bring in imports to better their country.
These are some very good stats that are very helpful to understanding what imports do in a country like the Czech Republic. The duty rates applied to imports into Czech Republic typically range between 0% (for example books) and 17% (for example Wellington Boots). Some products, such as Laptops, Mobile Phones, Digital cameras and Video Game consoles, are duty free. Certain goods may be subject to additional duties depending on the country of manufacture, for example Bicycles made in China carry an additional (anti-dumping) duty of 48.5%. The standard VAT rate for importing items into Czech Republic is 21%, with certain products, for example Children’s car seats and books, attracting VAT at the reduced rate of 15%. VAT is calculated on the value of the goods, plus the international shipping costs and insurance, plus any import duty due. Excise duty is payable on for example tobacco and alcohol. Additional customs fees can be charged to cover the expense of performing any required examinations, verification and or testing of the imported goods. All of these tariffs have helped the Czech Republic create and maintain a growing economy.
Furthermore, Healthcare is provided to anyone insured in the Czech Republic who falls ill or requires medical care. The system is paid for from Health insurance. This includes EU nationals and their family members who are ensured in Member States outside the Czech Republic. Persons working or residing in the Czech Republic are eligible for full health care. Those in the country for a short period of time (tourism or for business) are afforded emergency care in the case of an illness or accident.
Healthcare is free of charge, if:
- the beneficiary is insured with a health insurer;
- the healthcare facility has concluded a contract with the given health insurer;
- the examination or procedure is defined in the list of medical procedures reimbursed by the insurance.
Access to healthcare is not at all limited. Czech nationals can select from seven health insurers but health insurance is compulsory.
Like the U.S, employers pay insurance contributions for employees in the form of a separate payment and an amount deducted from employee wages. Self-employed persons pay this insurance themselves. Persons who are not working and who are not insured by the State must pay their own insurance contributions as persons with no taxable income.
Insurance contributions for employees and self-employed persons are defined at the same rate of 13.5% of the assessment base from wages.
The minimum insurance contribution rate in 2014 was as follows:
- CZK 1,148 per month for employees;
- CZK 1,752 per month for self-employed persons;
- CZK 1,148 per month for persons with no taxable income;
The State pays health insurance contributions for specific groups of residents. These are primarily:
- dependent children up to the age of 26;
- old-age pensioners and beneficiaries of disability pension;
- women on maternity or family leave, parental allowance beneficiaries;
- persons providing full-time care for a child up to the age of 7 or two children up to the age of 15;
- jobseekers registered with the Labour Office;
- persons receiving social welfare benefits due to social needs;
- completely disabled persons and their caregivers;
- persons in custody or in prison.
Compulsory regulatory fees are required in order to access healthcare services in cases stipulated by law.
This involves payment of CZK 30:
- to visit a physician;
- to visit a clinical psychologist or speech therapist;
- a prescription for prescribed medication.
CZK 90 is paid when visiting emergency medical services that does not result in the hospitalization of the patient.
Payment of this fee is waived for some groups.
Such groups include:
- pregnant women if they are undergoing an examination related to such pregnancy;
- children in foster care and children living in children’s homes;
- persons in material need;
- residents of facilities for the elderly or persons with disabilities.
Medical care is also accessible to persons who are not insured (e.g. third-country aliens). They must pay for their healthcare in full or have private party insurance.
Ultimately, the official currency of the Czech Republic is the Czech crown (koruna), abbreviated CZK. The approximate value of 100 CZK is 4 EUR/5 USD.
Czech Bank Notes: Come in values of 100, 200, 500, 1000, 2000 and 5000 Crowns.
Czech Coins: Come in values of 1, 2, 5 (all silver), 10 (brown), 20 (gold) and 50 (brown and gold, largest).
Since the Czech crown is official currency, it is the best and usually the only possible currency to use when paying. The Czech Republic is part of the European Union, however at this time the euro is not widely accepted in the Czech Republic. Some stores, restaurants, and hotels accept payments in euros but the exchange rate may not be very good.
Czech crown (CZK) to US dollar (USD)
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