Czech Republic to have highest budget surplus in modern history, but opposition says not due to good management

Andrej Babiš, photo: CTK

Finance Minister Andrej Babiš has reason to celebrate – by all accounts the year will end on the highest budget surplus in the country’s modern history. However contrary to expectations the government has not drafted a balanced or even surplus budget for next year and the minister has been accused of making “unrealistic projections” that would guarantee a good result.

Andrej Babiš, photo: CTK
Finance Minister Andrej Babiš was jubilant as he faced the press with news of what he promised would be the highest budget surplus since the founding of an independent Czech Republic in 1993.

“Our deficit for this year was projected at 70 billion crowns – what I consider important is the result achieved.”

The 82.3 billion crown surplus may dip slightly due to end-of-year budget expenditures, but it is still expected to be the highest budget surplus on record. The country only had a surplus in the first three years of its existence with the highest in 1994 –at 10.4 billion. The first state deficit came in 1996 and by 2003 the deficit had exceeded the 100 billion crown mark.

Mr. Babiš ascribed this year’s result to better tax collecting –by approximately 47 billion crowns- which he promised would improve further with the introduction of a law on electronic cash registers due to come into force in December. However, opposition parties counter that better tax collecting is primarily the result of the country’s solid economic growth and low unemployment. They moreover claim that the record surplus is not the result of good management. TOP 09 leader Miroslav Kalousek:

“The budget surplus is not due to keeping government spending under control, but due to the government’s failure to realize the investments projected.”

Miroslav Kalousek, photo: Filip Jandourek
The drop in investments year-on-year is approximately 37 billion crowns, with investments in 2016 at around 60 billion – a fall that the opposition describes as “alarming”, citing that in 2012, when the economy was still in crisis, the government spent 112 billion crowns on investment projects.

It moreover accuses the present government of squandering money on public administration and welfare benefits at a time of economic growth and, as the lower house starts debating the 2017 draft budget, there is mounting criticism of the projected 60 billion crown deficit next year. Deloitte’s chief economist David Marek agrees that under the circumstances such a steep deficit is unjustified.

“The main flaw is that the proposal for 2017 is based on the draft proposal for this year’s budget not on the reality. So I would say it is unrealistic in its assumptions, especially when the economy is expected to continue growing between 2 to 3 percent. So assuming there is no significant change in the government’s economic policy, then it should be quite easy to draft a proposed state budget with a mild surplus.”