Budget battle starts with mean opening bid by finance minister

Photo: Barbora Kmentová

The annual budget ritual has started with a mean looking opening bid by the Ministry of Finance together with expected savings in spending. That bid will be fought over during the next months but the deciding factor will be how government revenues shape up.

Photo: Barbora Kmentová
The battle lines are being lined up for the annual fight over the size of the public purse and who benefits most with Minister of Finance and ANO leader Andrej Babiš making the opening bid with a proposal that the state deficit be limited to 100 billion crowns next year.

The 2015 figure is once again under the 3.0 percent of GDP ceiling and 12 billion crowns below the 112 billion deficit target set for this year. Minister Babiš says savings should be made on run of the mill government spending and more money found for investment in transport infrastructure and energy saving projects.

But already representatives of coalition partners, the Social Democrats and Christian Democrats, have underlined that this is just the opening move and that they have their own ideas of where more funds are needed. Christian Democrat Minister of Agriculture Marian Jurečka has said more room should be found for tax breaks for parents. Party boss and Deputy Prime Minister responsible for Science, Research and Innovation Pavel Bělobrádek said holes in the research budget needed to be immediately filled if there are not to be serious consequences. And Social Democrat Minister of Education, Marcel Chládek has suggested more cash for education, pinpointing possible raises in teachers’ pay.

The bid and counterbids are all part of the ritual before the broad targets for revenues and spending become clearer by the end of June. A more definitive Ministry of Finance budget proposal should be delivered in September for the final confrontations to follow.

Babiš’ hopes of making cuts in the government’s so called operating costs echo similar pledges made by nearly all his predecessors and are likely to come up short of his expectations. A lot of the government’s big spending items, such as on pensions, social and unemployment payments, are more or less set with little wriggle room there and that is why the main cuts have hit spending on infrastructure projects, such as roads, in recent years. But there is one thing going for Babiš in this budget round which should avoid too much blood on the carpet, and that is the Czech Republic’s improving economic prospects.

This week the International Monetary Fund upped its growth forecast for the Czech Republic to 1.9 percent from 1.5 percent. Economic growth in 2015 should be 2.0 percent, it added. The Czech economy shrunk by 0.9 percent in 2013. The Ministry of Finance this week delivered a more cautious prediction of 1.7 percent for this year’s growth, up from the consensus forecast of 1.3 percent in November last year. But it also said it expected total central government debt as a proportion of GDP to come in this year at 44.0 percent. That is well below the European Commission prediction of it climbing to 47.2 percent in 2014 and 48.6 percent in 2015.

Higher government tax revenues, and any other coffers that can be raided, look like being the biggest factor in deciding whether Mr. Babiš can almost balance the books.