Incoming government coalition sets 2011 budget goals

Fast on the heels of an agreement on the share out of cabinet posts, the incoming Czech government has hammered out the main lines of its proposed budget for next year. The aim is for the state to pay its way on less borrowed money with the help of deeper cuts in public spending.

Petr Nečas, photo: CTK

Prime Minister Petr Nečas outlined final figures for the proposed public budget deficit for 2011 in a news conference on Wednesday. Those targets were hammered out within hours of a deal between the coalition partners, the right-wing Civic Democrats, conservative TOP 09, and centrist Public Affairs, on the share out of ministerial portfolios.

And for a centre-right partnership pledged to bring in what they describe as fiscal responsibility there were no big surprises in the headline figures.

The partners have set a 135 billion crown, around 7.0 billion US dollar, ceiling for the public budget deficit next year. That represents around 4.6 percent of Gross Domestic Product.

That goal is more ambitious than the target originally outlined by the outgoing caretaker government of a 140 billion crown deficit coming in at 4.8 percent of GDP.

The incoming Czech government, photo: CTK

The new target calls for the government to find an extra 74 billion crowns either from savings or higher revenue to prune its borrowing. From the pre and post election rhetoric of the coalition parties, it is no revelation that spending cuts are the main ingredient here, representing around two-thirds of the total.

And the public sector is set to bear the brunt of those cuts. Around 10 percent is expected to be trimmed from the public sector wage bill with the exception of teachers. And all ministries are expected to deliver 10 percent savings in their running costs.

Disability payments will also be pared and mothers are set to get one off payments only when their first child is born and not for any further fertility output. Added to that, investments in infrastructure projects will also be curtailed.

One post-election saving that was mulled, freezing pension payments so that they would not automatically be annually increased, has been dropped.

On the revenue side, some of the savings could best be defined as spectral. In this ghostly category of election promises and half promises that have hit the buffers are the aim to cut employers health and social contributions and ambition to lower the ceilings for health insurance payments by top earners.

Photo: Štěpánka Budková

Also, the initially floated idea of raising the lower rate of Value Added Tax, or sales, tax, which would have increased the price of many basic items and services and hit the poor hardest has been dropped, at least for next year.

One of the few real savings that can be identified are in the state incentives for building savings accounts. Here the state is taking with both hands: cutting up front payments to those who open such accounts and the tax breaks for interest payments from them.