Finance minister flags up danger for 2016 budget deficit target

Andrej Babiš, photo: Filip Jandourek

Finance minister Andrej Babiš is facing the begging bowl from government colleagues and other state authorities and has admitted for the first time that the agreed 70 billion state budget deficit target for 2016 might not hold.

Andrej Babiš,  photo: Filip Jandourek
After four hours of talks between coalition party leaders at the end of April the line in the sand was drawn as regards budget discipline for 2016. The overall ceiling of a 70 billion crown state deficit was set then at the insistence of Minister of Finance and ANO leader Andrej Babiš. But the details of who gets what was not settled then and, as is so often the case, the devil is always in the detail. Between April and August ministries and regional authorities have been able to come up with plenty of reasons why their financial belts should be relaxed rather than tightened.

Finance minister Andrej Babiš has meanwhile been insisting that the 70 billion deficit figure stands whilst making concessions of spending increases to various ministries and Czech regions. For the first time though on Wednesday Babiš admitted that his budget deficit line was under so much strain that it might not be able to hold. These were his comments to Czech Television.

“We have to recruit over a few years 4,000 more police, 1,200 soldiers and new equipment. It is a question whether under such pressure the deficit can be contained.”

Photo: Filip Jandourek
The finance minister’s comments came after he conceded around an extra 3.0 billion crowns for spending next year to the Ministry of Interior. Around a billion will go on dealing with the ongoing influx of immigrants into Europe and the Czech Republic and much of the rest on the police and fire services, also under some strain at the moment. Mr. Babiš gave around 400 million more away to the minister for regional development latter in the day but had already conceded a few billion crowns more to minister Klara Slechtová in previous talks. Around 14 billion in concessions to ministries have so far been made. Added to that is around 3.5 billion crowns promised by Mr Babiš after some haggling with the regions.

Today, the ministers of transport, environment, and justice go round with the begging bowls to the finance ministry. Justice and environment are not likely to cost him too much, but the transport minister, nominated by Babiš’ own party, is looking for around an extra 10 billion for increased spending on roads and rail.

In spite of his own doubts, Babiš says he will still defend the 70 billion deficit target ‘tooth and nail.’ The growing prospect he will lose the fight and be forced into retreat is not causing any real alarm.

Photo: Barbora Kmentová
One reason highlighted by analysts is that ministries and other state institutions often overestimate their demands and spending ambitions. The result is that they often have sizeable amounts of money left on their accounts at the end of the year. For example, the state budget deficit for 2014 actually came in around 40 billion crowns lower than the target of 112 billion crowns. With Czech bond yields near record lows, the cost of extra borrowing is also not that expensive at the moment. And with Czech economic growth surging ahead at three to four percent, a few billion spent here and there looks like loose change in this big spending environment.

In the long term, however, some analysts and the Czech political opposition point out that the 70 billion deficit target was not ambitious enough in the first place and that an opportunity is being missed to reduce the country’s overall debt burden.