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 APPROVED FOR RELEASE: 2009/06/16: CIA-RDP01-00707R000200110014-8

central authorities. The main components of the financial plan are the cash plan, the credit plan, and the budget.

The cash plan is drawn up by the State Bank to balance the currency flows within the economy. Since most cash payments between enterprises are prohibited, the cash plan is largely restricted to balancing the incomes of the population—wages, pensions, social security benefits, payments for the sale of agricultural products, etc.—against the available supply of consumer goods and services. Through the cash plan the government attempts to identify and control the inflationary pressures built into an economy in which not enough consumer goods are available to satisfy the demand generated by steadily rising incomes.

The credit plan—covering long-term and short-term credits, as well as the consumer and mortgage loans made by the National Savings Banks—attempts to identify all sources of loanable funds and to allocate them among economic enterprises and institutions. This plan is drawn up by the State Bank. Short-term credits are used to finance inventories and accounts receivable. Beginning in 1970, as part of an overall restrictive credit policy, this general type of credit was cut back in favor of short-term loans granted on a special-purposes basis. By reverting to this policy, closer supervision of enterprise plans was possible. In 1970 the volume of long-term non investment credit was curtailed and the grounds for granting such loans was limited primarily to putting a new plant into operation or increasing production in a given plant by more than 15% during the year. Priority was also given to loans for production of consumer goods by enterprises not previously engaged in that activity. In addition, long-term operational loans previously granted were subjected to possible early repayment, while new loans were made more difficult to get and were subjected to a higher interest rate—6% to 10%. Total credit in the 1971-1975 plan is to be reduced from 14.5 billion korunas—the 1966-1970 yearly average—to 9.5 billion yearly. Loans are being channeled primarily to the key branches: fuel and power, chemicals, construction, and housing construction.

Despite the importance of the credit plan, the heart of the financial plan remains the budget which is the chief financial investment for promoting the regime's economic policies. The budget collects funds from the wage tax and other direct taxes, from the excess profits of enterprises and concentrates them in the hands of the state. The state, through the budget, uses these funds to implement its policies of economic development, defense, and political and social control. Since May 1969 the state (CSSR) budget has been a combination of three budgets: a Federation budget, a Czech Socialist Republic (CSR) budget, and a Slovak Socialist Republic (SSR) budget. The Federation budget accounts for about one-third of the state budget and finances most defense, federal administration, and major development projects. The two national budgets finance—in addition to the expenses of their respective national administrations—those activities not covered by the Federation budget but included in a normal statewide budget, such as welfare expenditures and economic subsidies. Figure 14 outlines the 1971-1972 budget.

The level of control the state budget maintains over enterprises has been a reliable measure of central control in the past. Until 1970, enterprises were allowed to retain a large share of their earnings to finance operative expenses and, increasingly, investment. In some cases they could even lend their surplus revenues to other enterprises. The share of budget revenues derived from the socialized sector therefore fell slightly during 1966-69, while the share of budget allocations devoted to financing the national economy declined significantly. In addition, the regional authorities were given (and still retain) greater independence in handling their finances. Local revenues exceeding the planned levels may be spent at the discretion of the regional authorities, and any surpluses remaining at the end of the year (fiscal year = calendar year) may be carried over to the next year—that is, they do not have to be returned to the central government.

The bulk of budgetary revenues—82% in 1972—is derived from the socialized sector. As a result of government attempts to provide greater incentives for enterprise efficiency, the turnover tax is declining as a source of revenue, replaced by a variety of enterprise production and property taxes. In 1965 the tax yielded 45% of total revenue; by 1972, however, the yield had fallen to 25%. From 1965 through most of 1969 the state revenue system was designed to give enterprises more freedom of decision. Revenues from taxes other than the turnover tax fluctuated greatly during this period resulting from experiments in profit tax rates, wholesale prices, and preferential tax rates in priority sectors such as the consumer and food industries.

In January 1970, a new tax system was introduced for industrial and construction enterprises and foreign trade organizations. The purpose of this revised tax system was clearly to increase the regulatory and "stabilizing" power of the state in an effort to curb inflationary pressures. Thus, the profits tax was

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APPROVED FOR RELEASE: 2009/06/16: CIA-RDP01-00707R000200110014-8