Parliament passes budget in first reading

Czech Parliament

On Friday Parliament passed the revised version of the state budget for 2002 in its first reading. In mid-October it had turned the first version down because the biggest opposition party, the Civic Democrats criticized it on the grounds that the planned deficit was bigger than the so called opposition agreement warranted. Now, a couple of weeks later, the cabinet put forward a new proposal, which the Civic Democrats approved. Olga Szantova asked the chief economist of the Patria Finance investment bank, Ondrej Schneider, whether this new budget proposal really was better than the first.

"In my opinion the second version is a bit worse than the first one. There are two big differences, the first is that the government lowered its estimate of the loss of Ceska konsolidacni agentura, which is the bad loan agency. This agency is going to have huge losses in the future and it is just a matter of time whether you record these losses this year, next year, in 2003 or 2004. It doesn't make any difference from the economic standpoint. So, that's change number one and change number two is that the government included about 8 billion crowns in revenues from one of the Czech banks which pays for the bankrupt IPB, that's another Czech bank. This is 8 billion crowns which the bank will pay, but this is money that definitely should not go into the budget, it should go into the Konsolidacni agentura to pay for future losses."

So, it's just a matter of playing around with sums and a bit of arithmetic, is that the only difference?

"I think so. Well, there is a small cut, the government did cut about one billion from the budget, but if you think about the budget, it's about seven hundred billion crowns and the government cut one billion, so that's not a significant change, I would say."

The Czech Republic and the Czech economy have been criticized by various international economic organizations for the huge deficit, for being so deep in the red in our economy. Is this making the situation even worse?

"The budget does not make the situation any worse, it just doesn't make it any better. This budget is just a continuation of bad policies from the past."

What will the new budget mean for our economy in 2002 and in the following years?

"It will be positive in the short term. A high budget usually supports domestic demand, people are willing to spend more and the economy seems to be growing faster. But in the medium term the debt will have to be paid back and so in the horizon of two or three years this year's budget deficit and next year's deficit will complicate the Czech budget situation further and in two or three years we are looking for a severe or at least significant fiscal crisis, which means cutting back on spending, or an increase in taxes and as a consequence a slow down in the economy. So it's a short term gain but a medium term loss."

Not very helpful for the new cabinet that will emerge after the coming elections.

"No, it's not, but it's not supposed to be easy."

Author: Olga Szantová
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