Addressing the lower house’s budget committee on Wednesday, Finance Minister Miroslav Kalousek (TOP 09) said that despite falling budget revenues, he expects a budget deficit under 4% of GDP this year and progressively lower deficits in the coming years.
Earlier in the day, the ministry presented its report on the development of state finances and budget fulfillment in the first half of 2011 and full-year outlook to the government and parliament.
“I have asked the National Economic Council of the Government (NERV) to produce three scenarios of economic development: conservative, crisis and catastrophic scenarios,” Kalousek told the budget committee, adding that the crisis scenario would see a fall in gross domestic product of 2% to 3%, and a catastrophic scenario (5% to 7%).
Unrealistic, but say yes
Nevertheless, the budget committee then discussed the draft budget for 2012, based on a GDP growth forecast of 2.5% The Czech National Bank (ČNB) predicts the budget deficit for 2011 will be 3.8%, over a percentage point than in 2010 predicted in July, and recommended the lower house of parliament (Chamber of Deputies) approve the bill in the first reading — even though last week Kalousek had said the forecast would probably have to be revised to 1.5% growth and the budget adjusted accordingly.
According to the Czech Statistical Office’s (ČSÚ) consolidated figures, the state budget deficit amounted to 4.84% of GDP in 2010. The Czech National Bank (ČNB) predicts the budget deficit for 2011 will be over a percentage point lower, at 3.8%.
The draft 2012 budget counts on a lower deficit of 3.5% of GDP, and the ministry plans to reduce the public spending gap to 2.9% in 2013, and 1.9% in 2014. It predicts that by the end of 2012, Czech state debt will have risen to Kč 1.58 trillion, 7% higher than at end-2011.
If these figures and the budget revenue forecast proves accurate, the government debt will amount to 40.5% of GDP at the end of next year; according to the ČSÚ’s revised figures, it stood at 37.55% of GDP at the end of 2010.
The ministry admits that budget revenues will be around Kč 20 billion lower than forecast in this year’s budget, but Kalousek said the shortfall would be covered by further savings in other areas of spending. “I’m sure that we won’t go over the approved deficit [for 2011] of Kč 135 billion,” he said Wednesday.
According to the 2012 draft budget, next year the spending deficit will fall to Kč 105 billion from approximately Kč 156 billion this year.
New draft budget possible
Kalousek again warned on Wednesday that the draft 2012 budget may have to be revised in accordance with potential negative developments in the global economy, though he declined to predict figures. “Personally, I think the development will be much worse [than the GDP growth of 2.5% upon which the draft is based],” Kalousek said.
“I want to make assurances that if the situation changes markedly, the government will come forward with a new draft budget bill. Don’t be angry: We don’t know another approach. We’re living in a time of exceptional uncertainty, and we must be prepared for all possibilities,” he warned.
According to budget committee chairman Pavel Suchánek (Civic Democrats, ODS), MPs should begin debating the 2012 draft budget on Oct. 26, a day earlier than initially planned.
Explain the shortfall
On Wednesday afternoon MP Jan Mladik, shadow finance minister of the main center-left opposition Social Democrats ‘There has been a massive failure here and that it will somehow be made up for is not a response to the situation which has developed’(ČSSD), held a press conference at which he severely criticized the coaliion government (ODS-TOP 09-VV) for the shortfall in budget revenues and called Kalousek to provide an explanation.
“The Ministry of Finance has become a subsidies office that doesn’t collect taxes but hands out strange bonuses, and we still haven’t received a clear report from the ministry explaining why this is the case. … I would again like to call upon the finance minister to order an analysis and to explain clearly how this situation has come about,” he said.
Mladik went on to say the shortfall in tax revenues is a consequence of the 15% flat income tax rate introduced by the coalition, and could also be the result of “certain groups of professionals who don’t like to pay tax and whose wages it is very hard to verify.”
The shadow finance minister also speculated that the shortfall in tax collection may also be caused by illegal tax break claims, illegal bonuses, or a booming black economy, all helped by a lax government.
“There has been a massive failure here and that it will somehow be made up for is not a response to the situation which has developed against expectations,” Mladik said.
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