* More ambitious deficit targeting backed by improvements to central government budgeting and to the Medium Term Expenditure Framework.
* Further work in healthcare reform. The planned measures are one way forward but require additional attention. Reform needs ultimately to address the tricky issue of the coverage of public healthcare in the context of ever expanding treatment possibilities.
* Increasing the retirement age further and making a final decision on deeper pension reform.
* Following-up the recent tax reform. Plans for simplification of tax legislation should be followed through. A reduction in tax preferences and other support for home ownership needs to be put on the policy agenda.
The increased pace of growth is diminishing longstanding problems of structural unemployment. Indeed, it has raised a risk that labour supply constraints will limit economic development. Policy needs to improve incentives to work and accumulate human capital through a broad range of measures:
* Improving general labour market conditions, notably through further shifts in the tax mix to lighten the high burden on labour and reform of notice and severance pay regulations. Part-time and other non-standard types of employment should be facilitated primarily by removing barriers. Direct subsidies should be used sparingly.
* Helping parents combine work and family. Parental leave should be cut back, more resources should be put into supporting childcare services and improvements should be made to tax-benefit incentives for family households.
* Encouraging older cohorts to work longer, not only by increasing the standard age of retirement but also through further adjustment of early and late retirement regulation.
* Further reforming the education system. In secondary schools, there should be wider access to courses that provide options for tertiary courses as well as more benchmarking of schools and students. Tuition fees in tertiary education should be considered.
Rapid growth in export-based manufacturing is a key feature of Czech economic development. Harnessing globalisation largely requires tackling the same issues as those that help economic growth in general.
However, there should be some specific priorities addressing bottlenecks and market failures:
* Ensuring investment incentives are economically justifiable through careful monitoring and adjustment of existing schemes.
* Reforming migration policy to tap into the opportunities created by increased international labour mobility, to help overcome emerging shortages.
* Ensuring good transport infrastructure through effective use of EU-funds, public-private partnerships and the removal of entry barriers into the rail freight market more effectively.
* Supporting “growth poles” by tackling local and regional infrastructure bottlenecks, particularly in the Prague region.
