The austerity package affects the expectations of people who have been building something here for over 30 years.

The government’s austerity package aimed at consolidating public finances passed the Chamber of Deputies in mid-October and is now heading to the Senate, which will decide on it in November. "The final package is, unfortunately, a political compromise. I completely miss any kind of pro-growth strategy. That means the government should have said: yes, we’ve been through difficult times, and we need to bridge this period—justify it by increasing taxes across society—but at the same time, it should have explained what the money will be spent on," says lawyer Jakub Hollmann, partner at the law firm Císař, Češka, Smutný and chairman of the board of CCS Premium Trust. According to him, the package will significantly influence the decision-making of entrepreneurs who started doing business in the 1990s and are now considering selling their companies.

How do you evaluate the austerity package as a whole? Does it really bring economic benefit, or is it just political?

Unfortunately, the austerity package already reflects electoral themes. The government should have better justified individual measures—specifically, what it plans to do with increased taxation and the resulting revenue. What I find lacking is positive motivation from the government that would help voters understand why such significant changes, including tax increases, are being made—especially by a government that repeatedly claimed it would not raise taxes. That’s what I believe was and still is missing. When we look at other countries in Europe, where tax reforms are also taking place, we see much better communication strategies being used.

What specifically did you find lacking in the government’s communication?

Above all, the discussion never took place in terms of the benefits of the changes. What would tax reform mean for citizens? By failing to provide this narrative, the government also lost a strong political argument. For example, there could have been a plan outlining how infrastructure development would proceed. If the state wants something from the business sector—in this case, higher taxes—then it must offer something in return. That could be better conditions for doing business, which would in turn drive the national economy forward. There isn’t enough market competition to increase efficiency, and labor mobility doesn’t work in the Czech Republic.

Poland, for instance, significantly invested in infrastructure both during and after COVID. Mobility there has greatly improved in recent years. If you were to drive today from Munich to Ostrava, you’d most likely avoid going through the Czech Republic because it’s too difficult to traverse. We should take inspiration from Poland, especially in terms of infrastructure. Unfortunately, we lack the legislation that would enable the Railway Administration, the Directorate of Roads and Highways, and other major state institutions to build that infrastructure. Without legislative changes—something that should be a priority—it simply won’t happen.

Are you referring to something like the Line Structures Act?

Exactly. And we also need special legislation for high-speed rail lines. We have studies ready; the state is preparing, but without the necessary laws, these won’t materialize—certainly not within the timelines being presented. Look at France, for example: it has specific legislation for the construction of high-speed rail corridors. Those high-speed lines have long been operating at a loss, which is well known. But in terms of GDP and labor mobility, they bring enormous benefits to regions—far outweighing operational losses. The same can apply to regions in the Czech Republic that currently seem economically unpromising.

And if you set a goal in your government manifesto but don’t maintain it as a priority, nothing will come of it. So, we may need to wait for someone who truly takes this seriously and wants a functional Line Structures Act or construction law. If we continue giving unlimited power to NGOs that are founded a week before they file objections or lawsuits against building permits, then of course, this goal will remain out of reach.

Where should the initiative for new legislation come from? Is this a failure of the state?

The government must initiate the priorities it laid out in its own manifesto. Moreover, these are not new issues. Therefore, the government should drive legislative changes to fulfill its own agenda. We should also stop fear-mongering about the Czech Republic’s debt, which is among the lowest in Europe. Instead, we should use that status to make much-needed investments in infrastructure. But we can only do so if the legislative framework is prepared.

Additionally, the state should look inward—there is no discussion whatsoever about streamlining the government. Where one bureaucrat was needed 10 years ago, now five are doing the same job. And I’m not even convinced the quality of their work has improved.

Which measures in the austerity package do you see as positive?

Definitely the increase in excise taxes on alcohol and cigarettes. These are personal pleasures we all ultimately live with, but they impose a huge burden on the healthcare system. Regulation here must be stricter. This is also part of a broader European trend, and we see it paying off over the long term. So raising excise taxes on addictive substances is certainly a good step.

You work in wealth and asset management—how do you assess the changes to company sale conditions?

Unfortunately, it’s a significant blow to the expectations of entrepreneurs who have spent 30 years building something. The conditions for tax exemption on the sale of company shares are changing—specifically, a cap is being introduced: only the first 40 million CZK of gains from a share sale will be tax-exempt, even if the time-based exemption criteria are met. If you’ve spent over 30 years building a business, you’re likely expecting to sell it for more than 40 million. This is a major disruption that entrepreneurs didn’t see coming.

The taxation of share sales was originally scheduled to begin in 2024, but was later postponed a year. Do you expect a rush to use the current conditions before the higher tax burden kicks in?

You’re right—the change has been postponed to January 1, 2025. Many companies will likely commission numerous valuation reports over the next 12 months. We’re already seeing business owners change their plans and request updated sale strategies. In some cases, acquisition strategies are being adjusted, and the one-year deferral of the tax obligation is a clear advantage. I can’t estimate how many companies this will affect, but I believe it will particularly impact a group of entrepreneurs who started their businesses in the 1990s. Today, they’re between 60 and 70 years old—exactly the age when they start thinking about transferring ownership or selling their company.

Could this situation increase demand for share transfers, potentially creating a boom in investment or private equity funds wanting to capitalize on this? That is, could there be a wave of companies being sold in 2024 or even by the end of 2023?

Absolutely. The 12-month delay in implementation is definitely not going to waste. Many businesses want to prepare for it now. For those thinking of exiting their business within the next 3–5 years, this will likely accelerate their decision—because they stand to save a significant amount of money. At the same time, it might positively influence current owners who may reconsider selling altogether and instead look at who in their extended family could take over management. We’re seeing this among our clients—some are now rethinking their exit strategy and are instead exploring options to keep the business within the family.

You can read the article at archiv.hn.cz (October 30)