The income gap continue to close in the Czech Republic.
In 2009, when the global recession was at its height, the Czech Republic further reinforced its position of the state with the lowest poverty rates in the EU.
Two years ago, 9 percent of Czechs were suffering from low income. The other EU countries had higher numbers, with the second lowest poverty rate being 10 percent – in Island and the Netherlands.
The fresh data provided by the Czech Statistical Office show that the number of poor people in the Czech Republic decreased to 8.6 percent of the population in 2009.
According to the incomplete data of Eurostat, the EU’s statistical body, the poverty rates mostly increased in EU states in 2009. The Czech Republic and Austria are the only members that reported a decrease.
Robin Hood country
The data says that 885,000 Czechs (in a nation of 10.5 million) had serious financial problems in 2009.
The income differences in the Czech Republic had been on rise until 2005. In 2005, the average income of the top tenth of Czech families was six times higher than the average income of the bottom tenth. Since then, the gap has started to close. In 2009, the income of the richest tenth was only 5.5 times higher than that of the poorest tenth.
Also, the number of families where each member earns from CZK 6,000 to 15,000 (EUR 240-600) increased from 69.4 percent in 2005 to 72.6 in 2009.
According to the statistical office, the most important cause of the latest reduction of poverty in the Czech Republic is the public finance reform from 2008. While the VAT hike and reduction of some social welfare benefits had negative effects for the Czech Republic’s poorer families, this was compensated by significant tax discounts, with families with children benefiting the most from these measures.
In addition, pensions were increased two times in 2008, with working seniors being granted the right for a tax discount.Many of them have not paid any income tax since the reform.
Good times over?
However, the situation might not be as optimistic as it seem. In the EU, poverty level is set at 60% of the median household income.
While “only” 885,000 were below this line in the Czech Republic in 2009 (a decrease of 42,000 compared with 2008), the income of another 784,000 was between 60 and 70 percent of the average income. This is the group that will be extremely vulnerable to the drastic budget cuts and tax hikes planned by the government for 2011.
Czech economist from the CMKOS labor union Martin Fassmann believes that this time, the Czech Republic will really see its poverty rates rising – according to him, the rate can double. However, Fassmann admits that given the current very low poverty rates, the Czech Republic can endure some increase.