Czech Republic sees highest mid-year budget surplus in its modern history

The Czech Finance Ministry posted a state budget surplus of 75.6 billion crowns at the end of July, up from 41 billion the previous month. The surplus is 50 billion crowns higher than that registered in the same period last year and is the best result since the founding of the Czech Republic in 1993. The Finance Ministry says this reflects sound fiscal management and the effectiveness of measures introduced to fight tax evasion. I asked economist David Marek, from Deloitte & Touche, for his take on what’s behind the record surplus.

Photo: Matěj Skalický

“The main reason behind the very good budgetary data is primarily the situation in the Czech economy –the GDP growth has been keeping between 2 and 3 percent and the unemployment rate is the lowest in the last 10 to 15 years. Thus tax collection is much higher than in previous years, helping to keep the budget in surplus and even increasing the surplus, compared to previous years.”

Is it the economy or is it more effective tax collecting, as the finance minister claims?

“I would say that it is both, but the situation in the economy is a much more important factor behind the improving budgetary data. An increase in the effectiveness of tax collecting is visible as well, but I would attribute the improved budgetary data especially to economic growth.” Is it sustainable?

David Marek, Photo: Šárka Ševčíková

“I would expect a mild deterioration in the second half of this year, because it is a typical seasonal pattern of the state budget. Usually the government pays big tickets in the last two or three months of the year, especially before Christmas, so I would expect that the budget can slip into a mild deficit.”

The opposition has criticized the government for excessive spending at a time when the economy is doing so well –do you agree with that view?

“So far I would say that the budgetary development is fine and the criticism of excessive spending is not very relevant, but if the budget deficit should deteriorate in the coming months then it would be right to criticize the government because the present economic situation is very positive and the government should try to keep the budget in a mild surplus and put some money aside for worse times.”