Prime Minister M. Topolánek's address at the opening of the 50th engineering trade fair in Brno on 15 September 2008

Esteemed captains of industry, members of the Confederation of Industry of the Czech Republic, honoured guests, colleagues, we are roughly two years away from elections. Aside from the fact that one-quarter of this time was taken away from us by a post-election peripeteia with the formation of the government and its gaining confidence, we're at halftime. And it would be good to put together a sort of preliminary balance. I am prepared to do this, and this is one of the appropriate forums where such an accounting can be put together. I will speak more specifically, and not in promises, visions and strategies. You have been through enough of those before the elections. My predecessors remained with those. Because you have been through enough of those in the past. I apologise, because my speech will therefore be somewhat more boring. But I believe it will be more serious and more real.

I will start with the kind of country we inherited. We inherited a country that had just gone through high growth. That was above all due to a general conjuncture. The 6.5 % growth in 2007 exceeded expectations and together with our budget-cutting policy enabled us to sharply reduce the planned deficit – from CZK 91 billion to CZK 55 billion. We also inherited a robust economy, which, due to the reforms from the first half of the 1990s, was better able to react to growth in international demand, and more flexibly than other countries. This is also your achievement.

But with this, the good news practically comes to an end.

We have inherited a country that has not fulfilled the Maastricht criteria for joining the euro despite numerous accounting tricks. If it fulfilled them, it would be without a positive outlook and with a high degree of risk. A shallow fulfillment of the criteria in more complicated times will come back to haunt us. The deficit has practically constantly hovered above or around 3 % of GDP. There was a growth tendency as a result of spending increases before the 2006 elections. The Czech Republic neither fulfills the binding spending limits nor its own laws, and therefore faced sanctions from the European Commission. Including a stoppage of subsidies from structural funds.

We inherited a country which, despite external conjunctures and good performance from domestic companies had quickly gone into debt, and not just in an absolute relation, but also in relation to GDP. The government's debt grew between 1998 and 2004 from 15 % of GDP to double. In absolute numbers, it nearly tripled.

We inherited a country where unemployment did not decline despite high growth, and, what's worse, employment even fell. With more than 6 % GDP growth in 2006, the level of unemployment reached 8.1 %, and compared to 2004 it fell by only 1 %, while economic growth came to 4.5 % in 2004 and 6.4 % in both following years. In the previous period, even with persistent growth, employment fell by more than 50,000 people in two years and only at the beginning of 2005 did it reach 2002 levels.

We inherited a country where it actually didn't pay to work. A country in which government policy attracted a number of assembly plants that gave work to tens of thousands of unqualified and especially foreign workers. The combination of a generous and non-motivating social system and state-supported creation of positions with low wages created a social and economic trap. On one hand, Czech taxes subsidized the creation of "low end" positions for foreigners. On the other hand, there was a paradoxical combination of high unemployment and a lack of qualified and willing labour. At the same time, illegal labour rose massively.

We inherited a country with an inflexible labour market, with a Socialist labour law, with a structure of education that did not take the needs of industry into account, with a powerful and dysfunctional bureaucracy, slow courts... These and other non-tariff barriers harmed the conduct of your business and weighed down the achievement of your business goals.

We inherited a country with a confusing tax system. Corporate taxes especially underwent a praiseworthy cut, but they remained higher than comparable neighbouring countries, which cut our competitiveness. The lead we gained in the 1990s was rapidly lost at the beginning of the new century. Rightist governments in Slovakia and other countries were bolder in carrying out reforms, and it paid off for them.

We inherited a country that was marked by governmental populism and an unwillingness to carry out necessary reforms, even though it was an opportune time to do so. And it was actually the most important time. In a system with mandatory expenditure growth built in, spending would exceed the revenues of the state budget within two years. Putting off pension reforms, at least parametrically, threatened a collapse in the medium term.

We inherited a country with a system of health care and health insurance that stimulated billions in waste and was easy to misuse. Czech companies had to add on an extremely high number of sick days into their costs, to a total of nearly 10 million per month. The level of misuse or overuse of the system was evident.

We also inherited a country with a neglected transportation infrastructure and with rail cargo transport non-transparently weighed down by debts from passenger transport.

What did we do with this country in two years?

Firstly, we stabilized public finance. Due to reforms, the deficit in the government sector will fall to 1.5 % of GDP from 2.7 % in 2006. This is despite a slowing in growth caused by global and especially European recession, distortions on the food market, pro-inflationary tendencies and high raw resource prices.

Our reforms also motivate people to work, and they then do not live from social subsidies. Due to this, unemployment fell to the edge of 5 % (5.0 % in June, 5.3 % in July and August). At the same time, the average level of unemployment in 2006 was 8.1 %. I have to add that there are 150,000 available jobs in the economy. An additional roughly 300,000 jobs have been filled by foreigners working legally. For every two unemployed Czechs, today there are actually three jobs that are either available or occupied by foreigners. We cut long-term unemployment by 45 % year-on-year.

What's essential is that employment is growing sharply. People are motivated to take even worse-paying jobs, and this is due to a combination of stricter payments of social subsidies, tougher enforcement of illegal labour and tax changes that increase their incomes. According to macroeconomic predictions by the Finance Ministry, employment should increase to 5,992,000 people this year. Which is 164,000 more than at the end of 2006. We are promising that when green cards are introduced – and they have already been approved by Parliament - in parallel with the aforementioned steps and pressure on requalification, further improvements in the state and the resolution of one of the narrowest bottlenecks of your prosperity and ours. Together with deformations on the labour market, when we know that the battle over the labour law and its liberalisation unfortunately still await us. br />
Our health care reform and changes in sick leave have been successful as well. Because regulatory payments have limited waste – just in the first half of the year this is CZK 4.5 billion - the stability of public finance overall has increased. The introduction of a three-day waiting period affects companies directly. Due to this, the number of sick days fell by 11.4 % for the period of January to April, or more than 1 million per month. The number of short-term sick days with a duration of up to 14 days fell especially, and this by up to 45 % (the figures are for employees of small organizations).

Our reforms also cut taxes for companies. From 24 % to 21 % this year, 20 % next year and 19 % in 2010. Only the cancellation of tax advantages, breaks and deformations such as meal vouchers could lead to further improvements. It's clear this won't be easy, and it is evident that resistance is appearing in the environment and defence of undeserved profit with the pressure of unions and various other lobbyist groups. We have improved the business environment and limited bureaucracy. Due to the demolition of unnecessary requirements by Martin Říman and others, businessmen will save CZK 125 million. Due to this, the number of independent sole proprietors has risen in the last two years. According to prognoses from the Finance Ministry, their number should increase by the end of the year by 29,000 over 2006.

We have changed the system of investment incentives to be fairer and so that small and medium enterprises can reach them as well. The mandatory minimum investment was cut from CZK 200 million by half, and it's enough to invest CZK 50 million from your own resources. And we have prevented the subsidised shift of additional assembly plants. The new incentives will be received only by companies who install engineering equipment not older than 2 years, where at the same time their share in investment must be a minimum of 60 % instead of the previous 40 %.

We have sped up the work of the courts. The period of proceedings before business courts has been shortened by 104 days compared to 2007. The business registry also finally works normally, and the period of tiresome waiting and bribes has ended. We have implemented an insolvency registry. Communication is becoming simpler for citizens and companies with authorities and courts due to the digitalization of public administration and justice.

We have also ended the practice where the government stiffened bureaucracy under the explanation that "the EU wants it from us." The cabinet has accepted the general principles of Regulatory Impact Assessment (RIA). And it will not accept any proposed law that unnecessarily and disproportionately weighs down individual groups of residents or businessmen.

We are investing into the transport infrastructure. This is a total of CZK 147 billion for 2007-2008. For comparison, this was only CZK 70 billion for the years 2005-2006. We have approved a timeline for the development of transportation infrastructure for the years 2007-2013 which counts on CZK 800 billion for the construction of new motorways, highways and railways. For the first time, construction capacity is a problem. For the first time, it is clear not only what is being built, but also from which funds it is coming. Unprepared projects has proven to be a brake. We have also increased subsidies to regions for highway maintenance for this year over the approved budget from CZK 4 to CZK 5 billion. We are improving security on highways and motorways, including investments into telematics and a central information system.

We have made the operation of Czech Railways' rail cargo transport more transparent. For one thing, we have divided the Railway Transport Administration and Czech Railways. For another thing we have put freight transport into an independent subsidiary called ČD Cargo. If our joint project with the Slovaks is successful, the third-largest European cargo operator will be formed, which will bring profit for your transit as well, especially as regards effectivity and prices. In the fall, the government will discuss plans for the construction of high-speed rail tracks to the year 2020. This is about 700 km of tracks with a possible speed of up to 300 km/hour. The current corridors will then be freed up for cargo transport.

As regards education, we are aware that the system of vocational education must be changed. And this must be in cooperation with you. We want to give the corporate sphere the possibility of taking part in the formulation of educational goals as well as in inspecting the results. At the same time, it's clear that the traditional lines of work are not enough. We must adjust to rapidly-changing demand on the labour market and implement study programs with wider areas of focus. Last but not least, employers must be motivated to hire new vocational graduates and enable them to gain necessary work experience.

We have also begun discussion on the White Book on Tertiary Education. This will relate to you especially in support for bachelors' fields, and this in cooperation with the corporate sphere. Modern industry requires more and more graduates from non-university, practically-focused colleges.

In the area of research and development, we are interested in cooperation between universities, research institutions and companies, in so-called clusters, which we want to publicly support. Professorial positions with direct ties to the corporate sphere should also be created in universities. Indirect support of research and development includes tax write-offs, a multiplication of cost growth for research and development, or making the purchase of research from universities. On Wednesday, we approved an amendment to Law 130 on support to science and research and therefore began the realisation of the first stage of approved reforms in this sector. We are the first government to realise that only in this way can we maintain competitiveness, and we are the first government to carry out practical steps at home and on the international scene.

I am convinced that after a very long time we have a real finance minister. Aside from the standard management of the ministry, there must be an absolutely obvious effort to simplify and make transparent the entire system of collecting and managing taxes and related systems; This paradoxically runs most into opposition efforts from many of you to prevent these changes or shift them in time, and also the momentum and opposition of all of state administration.
I will leave environmental, energy and climate policy to Martin Říman's undoubted qualifications. If you feel that someone else could have achieved better and more advantageous parameters for the Czech Republic in today's EU in the given situation, then you have no idea of what goes on in the EU. If it wants to achieve more, then at the same time it calls for exiting or for isolation. I will leave the academic speeches to irresponsible politicians. Undoubtedly we will be forced to modify the Czech Republic's energy policy d in dependence on binding targets for the share of renewable resources in the energy mix and on the risks emerging from security and geopolitical aspects of supplies, mainly of oil and natural gas. The government supports modern and promising energy production, including the atom.

We also want to use our coming EU presidency to promote our policies of necessary reforms and liberalization on a pan-European level. Half of all regulations come from Brussels. The Czech government completely endorses the European Commission's goals of limiting regulation by one-quarter and we are leaders in this direction.

Of course, for us, part of our motto of "Europe Without Barriers" is about the removal of discrimination between old and new member states, on the liberalization of the common market, bringing the four basic EU freedoms to bear, and revising the budget, especially including the Common Agricultural Policy.

All the reforms we will carry out come together at one point. That is the acceptance of the euro. |I want to clearly say that we are the first government to stop simply talking about it and start to do something about it. If you are unhappy that we don't have the euro, you must complain about former Finance Minister Sobotka, which doubled the deficit and made the fulfilling of the Maastricht criteria. And of course, with former Prime Minister Paroubek, who populistically refused to carry out reforms, which puts off the fulfillment of real convergence criteria. I would further recommend that you complain to the current opposition in parliament, which is blocking the acceptance of primary reforms, especially for those system, which requires a wider political agreement. Without this, euro cannot be accepted.

Because of the first wave of reform, the Czech Republic is able to fulfill the convergence criteria. Nonetheless, this is not enough for a successful implementation of the common currency. We also need to fulfill the "supercriteria." Which means to tune our economic cycle as much as possible with the eurozone. And to complete reforms that enabled the economy to flexibly react to shocks from the lack of harmony of these cycles. This relates especially to the stability of public finance and the labour market. We have set out on this path. But we are still not at the goal, and it would would be massively irresponsible to speed up the acceptance of the euro without being prepared for it. We have already had two deadlines for accepting the euro. Choose the party who you believe the most and ask Bohuslav Sobotka how far we are.

I began with the kind of country we inherited, and then discussed what we have done with it and will do. What still remains is a short message to the future. I hope that you do not expect from me a date for joining the euro. We are not exchanging causes and effects. A successful implementation of the euro is a result of a functioning economy and state administration, and never the other way around. Fico's success in Slovakia is founded on Dzurinda's reforms, and not the opposite and not contrary to them. But I will tell you the goals that lead to such a status. A balanced state budget by 2014. Increased purchasing power parity by the same date compared to EU averages (this year that ratio was 82 %). And the implementation of a system of reforms to the pension, health care and social systems. It's probably not necessary to wait with the announced entrance into ERM II until the factual implementation and realization of these goals, but the steps that convince me personally of the safety and plausibility of these paths must be irreversible. I cannot promise the moon; over the last two years I have hopefully convinced you that I'm not wasting my breath and will not artificially slow anything down.

I lead a government that has does not have and has not had an easy position and automatic support for its proposals. We are walking through a minefield. Despite this, in just under two years we have managed to push through most of what we wanted and what you wanted as well. We still have a lot of work ahead of us. But I am absolutely convinced that we are on the right path, and, despite a complicated trajectory, that we are headed in the right direction. With our systemic and parametric steps we have planned for changes in trends. We have caught the decline in the European economy's performance and have correctly set the fiscal tools we have at our disposal. In this way, the Czech economy, Czech industry, your prosperity and the quality of life of Czech citizens have well-established terms for further growth. Thank you for your support and attention.