Business Preliminary deal on 2015 Czech budget agreed but fine tuning still likely

17-06-2014 14:51 | Chris Johnstone

The Czech Cabinet has hammered out a preliminary deal on the overall budget for 2015 with a fairly low deficit of 100 billion reiterated in spite of the pressure to recognise hikes in public sector salaries after recent years of wage caps and cuts.

Photo: Filip JandourekPhoto: Filip Jandourek ‘Giveaway budget’ would be the British phrase for it; a budget where everyone gets something and nobody seems to have to pay, at least in the short term. A dictionary definition might add that these budgets usually proliferate before elections with a financial hangover following soon after for whoever gets enough votes.

Czech finance minister Andrej Babiš looks like he has pulled off his own version of the giveaway budget although with the singular difference that parliamentary elections, unless he knows something different, are still a long way off on the horizon.

The government on Monday came to a preliminary accord on the budget with agreement that the previous deficit target of 100 billion crowns for 2015 will be maintained, meaning that the deficit will come in below the set ceiling of 3.5 percent of GDP. But the promised pay rises to policemen, firemen, state civil servants, and increases in pensions and minimum income will all be respected.

Thanks to the Czech economy stronger than expected growth prospects this year, the give away and deficit figure are seen as realistic by economists.

There is still some budget fine tuning to do with the ministries controlled by the main government party, the left-of-centre Social Democrats (ČSSD), holding out for increases in slice of spending to the tune of 4.6 billion. The demands mainly cover the Ministry of Defence and Ministry of EducationYouth and Sports.

Minister Babiš has gone one better than the tradition give away budget, and that is a budget where the deficit does not get added to the overall central government debt. The Ministry of Finance described how this will happen: “Stabilizing the national debt at the level of 2013 (approximately 1700 billion crowns) will be achieved by more effective use of state liquidity and through the use of the state treasury.”

Some economists say that magic could happen thanks to the finance ministry drawing on central government reserves to finance the state debt rather than resorting to the debt market and more bond issues.

While clearly aiming to please, the budget agreement has not been welcomed universally. The Civic Democrat (ODS) economic expert Jan Skopeček pointed out that in times of economic recovery the government should be setting its target higher and be aiming to reduce the overall state debt.

ANO leader Babiš’ predecessor in the finance post, TOP 09 deputy leader Miroslav Kalousek said that the minister had been too generous but at the same time said it was clear that he had not fulfilled his promised of saving dozens of billions of crowns.

The preliminary deal will have to be finalized by October so that it can be given final approval by the lower house of parliament.

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