Lower house approves record 500-billion-crown spending gap due to coronavirus

Andrej Babiš, photo: archive of the Office of the Czech Government

The Czech lower house has approved the highest deficit in public finances ever – a gap of 500 billion crowns. The prime minister argues that money used to sustain jobs and boost investment will get the economy back on track, but the opposition claims the astronomical sum has not been properly justified and will hurt future generations.

The economic impact of the coronavirus crisis has led the government to repeatedly increase the projected gap in public finances for 2020 –going from 40 billion crowns in February to the present 500 billion, which it says should be enough to deal with the losses stemming from the coronavirus crisis and shore up the economy against any additional problems. Defending the record gap in the lower house, Prime Minister Andrej Babiš said nothing could have prepared the Czech Republic for such a situation and argued that spending is what the country now needs to get the wheels of the economy turning.

“200 billion crowns for investment in 2020 – that is totally unprecedented.  This is a budget that maintains employment and supports investment; a budget that will benefit the citizens of this country.”

Alena Schillerová, photo: ČTK/Roman Vondrouš

The prime minister argued that the Czech Republic can well afford to apply this recipe for economic recovery since it had been fiscally prudent in past years. Even with the record gap of 500 billion crowns the country’s debt would rise from 30 to 40 percent of the GDP, still well below the EU average of 79.3 percent. Finance Minister Alena Schillerová also defended the need for more money in state coffers.

“The present deficit cannot be considered by standard criteria. There are still uncertainties regarding the pace of recovery in the third and fourth quarter. For this reason it is good to know that the government will have 34 billion crowns in reserve for potential emergencies.”

Not everyone has accepted these arguments. The state budget council called the massive increase in the 2020 deficit “premature”, the head of the centre-right Civic Democrats said it was an economic crime for the government to run up the state debt in this manner without justifying properly how the money will be used. Head of the TOP 09 party Marketa Pekarová Adamová said that while the need to invest was understandable, the government clearly had no plans to economize – and had failed to do so in the past.

“Even back in February we were looking at a record deficit, and there was no coronavirus crisis to blame it on at the time.”

The only opposition party which supported the budget – and which tipped the scales in the government’s favour was the Communist Party. Although it too is not happy with the size of the deficit, the party which has kept the minority government of ANO and the Social Democrats in power, allowed itself to be persuaded –on condition that the government drafts a consolidation plan for public finances for the years 2021 to 2027 by the end of September.

The steepest budget deficit the country has had to date was 192 billion crowns during the global economic crisis.