In the twenty years that the Czech Republic has been a member of the EU, the difference between revenues and contributions to the European budget, the so-called net position of the Czech Republic, has reached one trillion crowns. This held the promise of growth, prosperity and enhanced competitiveness. So how has the Czech Republic fared over the past two decades? This is the question answered in this year's 17th SAO report on the financial management of EU funds in the Czech Republic, the so-called EU Report 2024. The results of a total of 208 audits show that the Czech Republic has moved from initial problems with slow absorption and simple subsidy fraud to a system that ensures the absorption of funds but still does not address the meaning of subsidies. These are diluted into a multitude of low value-added projects. The dynamics of the Czech Republic's convergence towards the EU average has slowed down compared to some countries that also joined the EU in 2004.
"The subsidy system, which was supposed to significantly help us achieve the desired standard of living in the West, started to stall somewhere along the way and stopped showing the expected results. Without a strategic decision on where we want to go, without setting specific goals and without a thorough monitoring of their implementation, we will not move forward." said the president of the SAO on the findings Miloslav Kala.
The slowing down of the dynamics of the Czech Republic's convergence to the EU average can be documented in the growth of living standards. For example, between 2003 and 2022, Poland achieved a 33 percentage point rise in living standards - measured in purchasing power parity compared to the EU average - and Lithuania a 38 percentage point rise. For the Czech Republic, it was only 19 percentage points.
An example of strategic targeting of EU funds to key segments of the economy is the development and construction of infrastructure, where the Czech Republic has not fully fulfilled its potential. For example, compared to Poland alone, the pace of building new sections of motorways in the Czech Republic has been more than 10 times slower over the last twenty years.
The SAO audits showed that subsidies are also directed to areas that do not lag behind the European average, so the support does not bring the maximum effect. An example is the area of employment, where the Czech Republic, with its low unemployment rate, is a leader in the EU. In the audit of the "Antivirus" programme (audit action no. 22/28) Moreover, the SAO found that the state paid subsidies to maintain employment even to companies whose profits grew and the number of employees increased during the covid period.
The state is too generous in its level of support. It often reaches 70 % of costs, or even more, which does not motivate the subsidy recipients to behave rationally. This was shown, for example, by audit action no. 17/06where the beneficiary received a subsidy to build five game observation posts without setting limits. For one such observation post he received 348 thousand EUR. CZK 348 thousand, and CZK 295 thousand for each additional one. CZK. Another example illustrates the differences in the cost of repairing forest paths after calamities: one reconstructed metre of forest path without a limit was up to CZK 13 000, while another - connected - section of path had already had a limit set. Here, a metre of reconstruction cost CZK 3 000. "We could ensure the effectiveness of the support by introducing repayable loans or high co-payments by beneficiaries. It could also help if every subsidy crown was under public scrutiny," says Miloslav Kala, president of the SAO.
The subsidy system has been significantly influenced over the years by powerful market players who have contributed to creating the conditions to allow the maximum use of subsidies. This was documented by the SAO, for example, in audit operation no. 21/33, which dealt with the promotion of the processing of agricultural products. Although the support was to be directed preferentially at micro, small and medium-sized enterprises, the Ministry of Agriculture announced a programme to increase the competitiveness of large processing enterprises. Between 2018 and 2021, a total of CZK 1.7 billion was paid to these firms with annual profits of between 10 million and 100 million.
"We should realise that subsidy money is not manna from heaven. It does not fall from the sky and it is not for everyone." says Miloslav Kala, president of the SAO. According to him, we could follow the following rules: It is normal to manage without subsidies, subsidies must be paid to taxpayers and should be directed only to proven public service. Among other things, the SAO believes that the areas of the economy where support is most needed should be analysed; the number of subsidy titles should be limited so that money is directed to where it will bring the highest added value. The maximum share of subsidies should be limited so as not to lose its incentive character, and the whole subsidy process should be simplified, which would lead to a reduction in the so-called subsidy business.
In addition to a summary of the past two decades, the "EU Report 2024" deals in detail with the results of a total of 14 audits of EU subsidies carried out by the SAO from 1 April 2023 to 31 March 2024.
SAO/ gnews - RoZ
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