Czech Republic: The government is preparing another record cut in the state budget

According to the proposal of the Ministry of Finance, the government approved a new budget with a half-trillion deficit. Alena Schiller's department is now counting on lower incomes and higher expenditures; the current data were mainly signed by the tax package from the end of last year, which, among other things, abolished the super-gross wage. Economists acknowledge the new budget as more realistic, yet they say the government could be more modest.

Five hundred billion crowns. Such a level is to reach a budget shortage this year, the government approved at the beginning of the week on the proposal of the Ministry of Finance. Compared to the previous proposal, this is a relatively significant increase in the deficit by $ 180 billion. The Ministry of Finance argues "by developing the fight against the pandemic, adjustments in government direct assistance programs, reducing the tax burden on employees and challenges related to the burden on the health system."

If this budget deficit is filled, it will be the largest deficit in the country's history. Last year, the government also resolved on a half-trillion deficit, but in the end the deficit reached only 367 billion. Until then, there was a record deficit from the crisis year of 2009, when the state ended in the red with over 192 billion crowns.

The government thus brought the deficit closer to reality with the new deficit; in its previous versions and proposals, the tax changes from the end of the year and the inclusion of the costs of abolishing the super-gross wage were not recorded. "Minister of Finance Alena Schillerová and her colleagues have finally taken off their pink glasses," says Lukáš Kovanda, an economist and member of the government's National Economic Council, assessing the higher budget deficit. "Last year's draft budget, or its deficit of 320 billion crowns, does not include two very fundamental things: the second wave of the coronavirus pandemic and the tax package approved at the end of the year. These are such serious things that they should have led to a reassessment of the depth of the deficit much earlier, "he adds.

According to Natland group economist Petr Bartona, the government could have been more sober. According to him, the new budget does not show much will to save and does not correspond to better-than-expected economic development. "The amount of the proposed deficit is absurd. It is absolutely not in line with what we have learned about the economy since the original deficit was approved. The economy is in better shape than the ministry expected when drawing up the budget. To take into account the December tax adjustments, it should now logically ask for a lower increase than expected at the time. A better economy increases tax revenue and reduces the need for spending. Instead of reducing the increase, the ministry is now asking for an almost double increase, "explains the economist.

Both experts agree that by amending the budget, the government is creating a financial cushion for unforeseen events. The cabinet thus uses a similar tactic as last year, when the planned deficit did not exhaust by more than 130 billion. "In the end, the resulting deficit will probably not be half a trillion, it is rather just its now highest conceivable maximum upper limit. This year's deficit should be in the range of 420 to 450 billion crowns, which means, however, that it will be higher than last year, and therefore the highest in history, "explains Kovanda. "We can only hope that the ministry will not exhaust the deficit in the end, as it did not exhaust it last year. However, it was not an election one, this year such an unjustifiable deficit may be too tempting a temptation, "Bartoň adds.

According to the amendment, the state budget should manage revenues in the amount of CZK 1,385.6 billion (decrease in revenues compared to the original budget by CZK 102.7 billion) and expenditures in the amount of CZK 1,885.6 billion (increase in expenditures by CZK 77.3 billion). "We are among the countries with the lowest debt and the best ratings. It is our duty to take advantage of this great position and to continue to massively support the economy. Whether by reducing taxes or through direct aid programs, where we will pay out 40 billion crowns in February and March alone, "says Minister of Finance Alena Schillerová about the new draft budget.