Investment incentives for higher employment: out of CZK 1,500 million nearly CZK 900 million used without justification for creating new job vacancies

PRESS RELEASE on Audit No. 15/20 – May 16, 2016

The Supreme Audit Office (SAO) performed an audit at the Ministry of Labour and Social Affairs and at the Labour Office of the Czech Republic and scrutinized funds used for training activities and creating new jobs through investment incentives in the period from 2012 to 2014. During the audited period, the Ministry provided the Labour Office with some CZK 1,400 million for investment incentives, out of which CZK 278 million were paid by the Labour Office to companies. Auditors scrutinized all the funds as well as some of the funds, which were used at selected 15 companies, which received the investment incentives. The said companies received CZK 233 million (more than 80 % of the sum).

According to the audited data, 4 916 new job vacancies were created by the audited companies from 2003 to 2013, which cost CZK 800 million. On average, one job vacancy created with the help of investment incentives cost CZK 163,000. Originally, only about CZK 50,000 were used from the national budget to create one job vacancy, while the amounts increased to CZK 200,000 after the end of 2013 and even to CZK 300,000 in some industrial areas in mid-2015. These amounts only included investment incentives for the creation of new jobs as the investors also received further financial support from the State, for instance tax advantages.

It is not possible to assess how exactly the investment incentives impacted the unemployment as the process of creating new jobs is also supported from other subsidy schemes, new vacancies do not only attract the unemployed, and when new job vacancies are created, other jobs disappear. From 2012 to 2015, the unemployment rate went down from 8.6 % to 6.5 %. However, the number of job seekers who had been registered with Labour Offices for over 12 months increased from 186,000 to 211,000.

The most serious errors found at the Ministry of Labour and Social Affairs and the Labour Office were related to budgeting and the execution of the budget for creating new jobs. Each year, the Ministry overstated the budget for new jobs in the order of CZK 100 million. The SAO concluded that out of roughly CZK 1,500 million budgeted for investment incentives in the period 2012–2014, some CZK 880 million were not justified. Such overestimates violate the budgetary principles. For example, the whole amount of subsidies to be paid to a company to year 2017 were included in the budget for the year 2014. In another case, the budget included subsidies for an investor who had not applied for them.

Only small fraction of the budget was executed as one-fifth from the budget of around CZK 1,500 million were paid to companies by the Labour Office. One half of the remaining sum were transferred into the account of unused funds, the other half was used by the Ministry of Labour and Social Affairs for various purposes, e. g. for salaries of the staff in the Labour Office, the Czech Social Security Administration, and the State Labour Inspection Office. The SAO has criticized the fact that by such transfers, hidden reserves are created. In the SAO’s opinion on the final accounts of State budget for the year 2014, the SAO warned that the account of unused funds amounted to CZK 155,000 million in the beginning of 2015. According to the Government, the amount was similarly high in the beginning of 2016.

Communication Department
Supreme Audit Office

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