The 2012 state budget on Wednesday sailed thought the lower house of Parliament despite heated protests from the opposition who labeled it “misleading” and “unrealistic”. The budget which anticipates a reduced deficit amounting to 3.5percent of GDP was tailored according to April’s growth forecast and the government has admitted that a significant revision can be expected in the spring.
“Better this budget than no budget” that is the main argument to be heard in connection with a budget which will most likely fall short of around 30 billion crowns. Finance Minister Miroslav Kalousek who fought fiercely to lower the projected deficit to 3.5 percent of GDP –down from an estimated 4.6 percent this year, insists that the set course will be maintained and a revision will be worked in according to more accurate growth estimates posted in January of next year. While analysts agree that Europe’s worsening economic outlook was hard to predict, Reiffesen bank’s chief economist, former finance minister Pavel Mertlík says Poland took a more prudent approach to the problem.
“The Polish government has given us a fine example – its government has been working on three scenarios or drafts –based on a 3.2 percent growth, 2.5 percent growth and a growth of one percent. It has selected the middle one which it believes reflects the present forecasts, but either way it has a big advantage –it has a budget for one percent growth, the details of which have been debated and published. Everything is above board and people in Poland know exactly what to expect if the situation should worsen.”
The Czech Finance Ministry, which has cut its growth outlook to 1.0 percent next year is now also debating three crisis scenarios –including a catastrophic version to be implemented in the event of recession. The forty or so changes which should form the backbone of an expected budget revision next spring include further spending cuts, tax hikes, including a unified VAT rate of 20 percent and higher bank taxes, a freezing of pensions, layoffs of police officers, and many others.
Ilustrační foto: Barbora Kmentová
Only some of these proposals have filtered through to the public which is just beginning to feel the pinch of reforms and austerity measures that came into effect on December 1st –such as higher prices for medicines and hospital treatment - and bracing for others due to hit them at the start of next year –such as costlier food products, higher electricity and gas prices and higher transportation costs among others. While the country has so far managed to avoid any direct impact of the euro-zone debt crisis its export dependent economy will inevitably suffer from slowing demand abroad. Economist David Marek says the country is not likely to get off lightly.
“Simply said there is a simple rule of thumb – if the euro zone dips by five percent then the Czech economy would do the same. It is roughly 1:1 and the response is almost immediate. So we can look at the forecast and actual developments in the euro zone and we will quickly see the same figures here as well.”