Business analyst: government’s austerity plans should not undercut growth
The government on Wednesday approved far-reaching austerity plans to gradually lower the gap in public finances to well below 3 percent of the GDP. The strategy combines savings and tax hikes that are expected to impact all strata of society. Radio Prague asked business analyst David Marek whether such extensive austerity measures were called for and who would bear the brunt of the fiscal reform.
Will the proposed measures not undercut growth? Growth is now at just above 0.
“The Czech economy has one significant feature – it is a small, open economy and fiscal policy has a relatively small impact on GDP –respectively the impact of the fiscal policy is offset by net exports, so I would say that the impact on GDP growth from the proposed measures would be very limited.”
The government says it has distributed the measures fairly evenly across the board – so that the burden is evenly shared –but who do you think will bear the brunt?
Now obviously the gap in public finances needs to be reduced to under 3 percent of GDP, but the government is aiming for 1.9 percent in 2014. Are we not holier than the Pope here?
“I would say this is a reasonable goal because even 1.9 percent of GDP is still too much for the Czech economy and its long-term sustainability. We are not in a situation like Spain, Portugal or Italy -we do not need to hurry with fiscal consolidation, but we should show some progress because financial markets cannot tolerate deficits as big as 3 percent forever.”
But is raising taxes the best way to go about it? Some analysts say a lot of money is still being squandered in the public sector. Do you feel that this was a wise decision?