Government approves 2008 draft budget

The Czech coalition government on Wednesday unanimously approved the draft budget for 2008. With a projected deficit of 70.8 billion crowns the draft budget would meet one of the basic EU criteria for adopting the euro - a deficit below 3 percent of the GDP. The governing parties say getting there wasn't easy but not everyone is cheering.

Miroslav Kalousek

Although the government's reform package indicated that the finance minister would retain a tight hold on the purse strings this year there was a great deal of last minute wrangling over funds. The culture, agriculture and education ministers walked out of the meeting victorious - having secured several million more crowns than they'd been promised. But despite the last-minute concessions, Finance Minister Miroslav Kalousek stuck to his guns: next year's deficit must remain below three percent of the GDP which meant that he was only willing to transfer sums between the draft budget's individual chapters.

The state expenditures are projected at 1,107 billion crowns, the revenues at 1,037 billion crowns. The projected deficit of 70.8 billion crowns (or 3.5 billion US dollars) amounts to 2.95 percent of the GDP. The finance minister said that the division of funds reflects the government's priorities, i.e. science, research, education and infrastructure. But he stressed that in one way or another, the country would have to economize.

"If you want a new roof then you will have to forgo your holiday. It is as simple as that."

Despite the last minute skirmish over funds the budget was approved unanimously. Its projected deficit is 20 billion crowns lower than this year's and if it is upheld by Parliament, it would put the country on the path to adopting the single European currency. Despite protests from the opposition parties who consider it too radical by far, the budget's chances of gaining approval in Parliament are considerable. The governing parties are likely to throw their weight fully behind it and the centre-right coalition can also rely on two defectors from the opposition Social Democrats to help push through the legislation. However economists have not given the government high marks on the grounds that the draft budget does not reflect the economy's real potential. Ales Michl of Raiffeisenbank says that conflicting interests within the governing coalition have prevented the government from implementing a real reform programme -with the help of which the projected deficit could have been halved.

Ales Michl

"This budget will not be good for the country's future economic growth. The problem is that the proposal does not include enough expenditures which are key for achieving a balanced budget - that is our problem. I would say that our government has tried to focus on the revenue part of the budget but a much better strategy would have been a cost-effective health system, pension system and education system."

So given this budget how do you see the economy shaping up?

"I would say that there is a lack of vision. For sustainable economic growth you need economic vision -you need to be able to set a route and follow it - liberal or conservative. We have wasted three years of economic growth, but we still have a lot of tools to achieve a balanced budget by 2012. The only problem is the lack of political will to do something about spending - this country needs to implement reforms."

Despite the criticism, the centre-right government maintains that it has done more to implement reform than any of its predecessors and that the reform package, narrowly approved by Parliament last month, is merely the first phase of a far-reaching reform plan.