In an interview with Seznam Zprávy, the head of Madeta (a Czech dairy company) Milan Teplý stated several facts that contradict basic financial knowledge. It is astonishing that he is the owner and boss of such an important company. Let’s take a look at it.
Mr. Teply began the interview by saying that Madeta will be profitable this year. Congratulations! We are glad that the business will be profitable. However, he immediately added: “It’s a sin to be in profit, we won’t get subsidies.” We do not understand this. Why should a company that is making profit seek subsidies and ask the state for support?
Entrepreneurs bear all the risks, and then they are also entitled to all the profits. It is astonishing that Mr. Teply should say several contradictory things in one interview:
“We did not make an entrepreneurial mistake. And no one will even tell us directly that we will not get anything,” and then: “We did not have fixed energy prices. Nobody warned us. Who could have guessed the movement of energy prices?” and then adds, “I have been trying for 30 years to maintain some level of production. I am not going to lower it now. That is why I have not invested in technology.”
Where did Madeta go wrong?
First of all, in the fact that it does not have fixed energy prices. This mistake was not made by many citizens, who had fixed prices. It is surprising that a leading dairy company did not fix energy prices, and now wonders why the state did not tell it anything beforehand.
However, it is not the role of the state to inform about energy prices; it is the role of the entrepreneur to ensure that he has all the information he needs for his business. And even if the state did want to inform businesses about energy prices, how could it have anticipated such movements? Unless Putin has informed in advance that he will invade Ukraine, which is the root cause of the energy crisis.
Another mistake of Madeta is that the company did not invest in technology during a time of great profits. Investing in technology does not mean ripping off customers, but, for example, optimizing, digitizing internal processes, logistics, management, production and so on. Investing in technology allows the firm to produce more at the same or even lower costs. Ultimately, this leads to the profitability of the company.
Profitable companies do not need subsidies and non-profitable companies do not deserve them.
Furthermore, the article repeats the narrative that large companies should be subsidized. “It is not possible that businesses of our size will not be subsidized in this situation,” thunders the head of Madeta. Again, we must remember that the state has no resources of its own. The state lives off the money it collects in taxes, and it is only this that it can give away. In order for the state to give money away, it has to take it from somewhere. It can either collect it in taxes or borrow it.
Of course, borrowing is no prize for the state. Debt has to be repaid, and the greater the debt of the state, the greater the debt repayments.
In 2021, the national debt exceeded 40% of GDP, which means that every month the state will pay three billion crowns in debt repayments. This is “only” about 2.5% of what the state collected in taxes each month in 2021. We saw in the infamous case of UK Prime Minister Liz Truss that a government in a small economy cannot indefinitely indebt itself, because there will come a point when the interest rates will be so high that even politicians will not want to pay them back with foreign (our) money.
Moreover, we can now assume that the economy will be in a downturn, so the monthly relative debt repayment may be higher than 2.5%, and this is because the government will collect less in taxes.
Mr. Teply, do you want state support for your profitable business at the cost of deepening the public debt? What are you going to do with the profits, keep them? Is it fair for the taxpayer to contribute to the running of your business? Tell us.
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