Finance minister sets deficit limited of 70 billion crowns for 2016

Andrej Babiš, photo: Filip Jandourek

Although tax revenues have been a bit disappointing so far this year and spending ministers are still making claims for extra cash for 2016, finance minister Andrej Babiš has drawn a line in the metaphorical sand saying that the 70 billion crown deficit for next year cannot be exceeded.

Andrej Babiš,  photo: Filip Jandourek
Finance minister Andrej Babiš has appeared open handed in recent days. Newly installed education minister Kateřina Valachová has been offered an extra 1.5 billion for spending next year, the health ministry has been offered an extra 1.2 billion, and interior minister Milan Chovanec has been given the green light to reward volunteer firemen.

While there still might a little leeway, and Babiš has hinted he might be amenable to higher spending on new infrastructure such as roads, railways, social housing, and rural development. But he has nevertheless drawn a line in the sand as regards the 2016 state budget deficit. The proposed 70 billion crown state deficit for 2016 is not open to negotiation, says the finance minister.

The proposed deficit for next year takes its place in a mid-term budget plan which expects the state deficit to continue on a steady downward slide to 60 billion crowns in 2017 and 50 billion crowns in 2018. The last figure is judged by Babiš to be about the right level if the Czech Republic wants to entertain any ideas about joining the single currency euro zone. Critics, such as former minister of economy and current president of the Czech Chamber of

Commerce Vladimír Dlouhý, said the deficit cutting is far too timid when the economy is growing at near record rates and government revenues should be soaring. The problem though is that value added tax and direct tax revenues in the first five years of this year seem to be badly trailing expectations. Income received is below the levels of 2014 and that has cast doubt over the finance minister’s claims that he his arrival in office would substantially improve state housekeeping.

Prime Minister Bohuslav Sobotka was quizzed about the shortfall in revenues following Wednesday’s Cabinet meeting. Sobotka was fairly blunt. He said that a series of moves to improve tax revenues and counter fraud, such as electronic registers, have been passed by the government but are still waiting for parliamentary approval. If all goes well, then the measures could take effect at the start of 2016 and an improvement in revenue volumes might result. In the meantime, improvement in tax raising might amount to hundreds of millions of crowns rather than billions.

So Babiš has for now had to cast his eyes elsewhere for increased tax revenue possibilities. The focus will fall on state companies with Babiš ordering an audit to see whether more cash can be squeezed out of them. He has also noted that the Ministry of Foreign Affairs has a large real estate portfolio, such as embassies and consulates, in prime positions which are often only half full.