Government approves 2012 draft budget
The Czech coalition government on Wednesday approved the 2012 draft budget with one priority in mind – fulfilling its promise to bring the country’s public finance deficit under control. The projected deficit of 105 billion crowns fulfills that target. It would narrow the gap in public finances to 3,5 percent of the GDP, but analysts say that the latest growth predictions for the Czech economy in 2012 will almost certainly throw a spanner in the works.
Despite the negative forecast the cabinet decided to push ahead with the draft budget in its present form and deal with the consequences later. Finance Minister Miroslav Kalousek:
While the government can be fairly confident of its ability to push the 2012 draft budget through parliament – wielding a comfortable majority in the lower house – analysts say its troubles with the budget are far from over. Raiffeisenbank’s chief economist, former finance minister, Pavel Mertlík had this to say:
“The government is obliged to deliver next year’s draft budget to the lower house by the end of September, so I understand that they are acting under time pressure. But, having said that, the budget is definitely not realistic. The predicted tax revenues are overly optimistic –much higher than they will be in reality. Not only is economic growth predicted at 2.5 percent, but consumer consumption growth is projected at 2 percent which is totally unrealistic if we take into account that the VAT on food and other basic necessities will increase from 10 to 14 percent. That will have a negative impact on consumption for sure and the revenue from VAT and excise taxes will be lower by several billion Czech crowns –maybe up to 20 billion Czech crowns.”
“The government will have to propose an amended budget –one thing is certain the government will need to make more cuts in public spending if it wants to meet the set fiscal target.”