Coalition government agrees on 70 billion crown budget deficit in 2016

After days of controversy the ruling coalition on Wednesday announced it had reached agreement on the thorniest aspect on the 2016 state budget – the gap in public spending. There is general agreement that next year’s budget deficit should not exceed 70 billion crowns, on the understanding that the government should seek ways to find extra money for increased social spending.

Andrej Babiš, photo: Filip Jandourek

Finance Minister and ANO leader Andrej Babiš, who holds the purse strings in the three-party cabinet, fought long and hard to put the ceiling on public spending at 70 million crowns next year. Ministries clamored for more funds, arguing that the austerity measures of past governments had left them high and dry, and the ruling Social Democrats made it clear they would be happy to settle for an 85 billion crown deficit in 2016.

At the end of the day, the finance minister pushed through his 70 billion crown ceiling, but it was only a partial victory. He agreed to a 3 percent rise in the salaries of civil servants and a 1.5 billion crown increase in spending for research –expenditures he had previously opposed. Moreover, while the Social Democrats nodded to a 70 billion crown deficit, they have not given up on their plans to increase pensions, spend more on security and defence and increase the state’s contribution to insurance payments. In order to reach agreement on the 70 billion crown deficit the three parties agreed to look for ways of providing the extra money needed for these plans. However they are at odds over how this should be done – Mr. Babiš’ ANO party says it is happy to increase social spending if the money is found through cost-cuts in state administration or individual ministry budgets. The Social Democrats, on the other hand, are far more inclined to resolve the problem by increasing corporate taxes, something that Finance Minister Babiš has ruled out point-blank. The only point on which the three parties agree is that it would be good to find the extra funds by improving the collection of taxes, which is an uncertain source at best. Consequently, the main battles over money in the 2016 budget are still to be fought.

Meanwhile, the opposition parties and economists alike feel that the government is being overly generous, as it is. Former finance minister and TOP 09 deputy chair Miroslav Kalousek made himself heard in the lower house that in view of the projected 2.5 percent growth next year a 70 billion crown gap in public spending is “immoral”.