“Unrealistic” state budget for 2009 approved by lower house

Despite its minority support in the lower house the centre-right governing coalition on Wednesday pushed through the state budget for 2009, securing the votes of all five rebel deputies and overriding protests from the opposition Social Democrats and the Communists. This could be seen as a major victory for Prime Minister Topolánek’s government, but there’s a hitch. The budget, which operates with a deficit of some 38 billion crowns, or more than 1.9 billion US dollars, is based on a 4.8 percent economic growth forecast which critics say is simply “unrealistic”. They claim that the deficit is inevitably going to be much higher. Analyst Jan Macháček, from the Czech weekly Respekt, says that data for the 2009 state budget are simply out of date.

Mirek Topolánek, Karel Schwarzenberg and Finance Minister Miroslav Kalousek, photo: CTK

“It certainly is a budget which is based on very old predictions of economic growth. The skeleton of the budget was put together during the spring, before deputies went on vacation, and then it was only tuned a little. So it’s based on very old predictions and numbers and in that respect, the chances are that the deficit will be much, much bigger.”

The government predicts that the country’s economic growth next year will be 4.8 percent but according to most forecasts it will only be around 2 percent. Why didn’t the government use a more realistic estimate?

“There are both political and professional reasons. One thing is that the Czech government definitely underestimated the depth and scale of the financial crisis and its consequences. It also has to do with the fact that there is no serious economist in the governing coalition; there is not a single economist among the members of the cabinet. There was also this ideological and partly nationalist attitude that the crisis will not touch us because the Czech crown will protect us. The third reason was that there was political manipulation – if the government said before the elections that they would have to make proportionate cuts in every chapter of the budget for every ministry, it would cause serious political disruptions before the regional elections which took place last month. In the end, we saw that the government’s reputation could not have been worse before the elections so in reality it didn’t help much.”

What will be the consequences if the deficit is going to be around 100 billion crowns, rather than the estimated 38 billion?

Finance Minister Bohuslav Sobotka

“The consequences will be simple. There are rules within the Maastricht criteria so we will have to negotiate with the European Commission about the range of the deficit and how much wider a deficit of public finances they will permit us; there is also a chapter which says that in emergencies and under some bleak predictions, the deficit might be higher. The government will have to cut proportionally in every chapter and postpone some expenditures. But this paradoxically comes at a time when there is so much political talk about helping the economy in an environment of a very slow growth and even recession. These are two conflicting powers; one of them pushes for cuts in the budget to meet the Maastricht criteria, and on the other hand, the government will be under pressure to help the ailing economy. We can expect that the cuts will be a little lower than they would have to be under normal circumstances.”