Debt brake revived but support lukewarm from opposition parties

Czech government parties have decided to add another instrument to the toolbox for curbing the country’s overall debt, a so-call debt brake. But the proposal is already coming under fire for not being ambitious enough and the required support from opposition parties is still in question.

Photo: Barbora Němcová, Radio Prague International

A week, as one British politician commented, is a long time in politics. A year is even longer.

One year ago a so-called debt brake aimed at setting a ceiling on the country’s overall debt and sparking emergency measure if the limit was passed was declared dead after it was clear it would not win the support of the opposition.

The then main opposition Social Democrats and Communists denounced the move as tying the hands of future governments. A few weeks later the centre-right government of prime minister Petr Nečas collapsed. But the debt brake was not dead and buried with the former prime minister and finance minister Miroslav Kalousek.

A new revised version, what might be described as a debt brake lite, is now being championed by the centre-left government of Bohuslav Sobotka. At a meeting of party leaders of the three-way coalition they thrashed out the basic shape of the new debt brake and the target that it should come into force from January 1, 2015.

Bohuslav Sobotka, photo: Kristýna Maková

The debt ceiling agreed upon is 55 percent of Gross Domestic Product. If the overall central government debt exceeds this limit then emergency measures will be triggered to put the budget back in balance or surplus. The measures could include cutting the pay of civil servants and cash transfer from the state to other public institutions could dry up. ANO’s Minister for Regional Development Věra Jourová said on Monday that it had been decided that curbs on pension increases would not be included in the debt braking measures.

A three-member National Budget Council should also be created to monitor the country’s debt developments with monthly reports on the situation likely to be forwarded to the Cabinet.

The proposed new law will amount to a constitution change and will require a three-fifths majority in both chambers of parliament to be passed. The government parties command 111 seats in the 200-seat lower house of parliament and will therefore fall a fair way short of that majority.

Martin Kupka is a deputy chairman of the right-of-centre Civic Democrats. While agreeing with the main lines of the government move he complained that it looks a lot weaker than what the previous government was proposing where the debt brake would have become operational when it broke the 45 percent of GDP barrier.

“I think that it is necessary for a much stricter yardstick to be used for politicians because the whole intent of this is that politicians cannot heap up the debts of the Czech Republic and the Civic Democrats established the ceiling for the first steps to be taken already at 45 percent of GDP.”

Martin Kupka, photo: archive of Czech Government

Kupka refused to say whether his party would back the government’s debt brake proposal, adding that in its current form it looked likely to impact a future government rather than the present one. Czech central government debt currently stands at around 47-48 percent of GDP, a comfortable distance short of the proposed 55 percent ceiling. The centre-right TOP 09 party has not declared its stand on the proposal either.

Debt brakes are far from uncommon tools in Europe. They have long existed, for example, in Switzerland where a balanced budget is demanded over the mid-term. Spain, Poland, and neighbouring Slovakia also have such measures. For Bratislava alarm bells sound when the debt goes over 50 percent and resolute action required when the 60 percent limit is breached. Poland had three separate ceilings but the government already suspended the lowest one of these when it was exceeded. That begs a question whether they really stop debt increases in their tracks or just slow them down.