Czech government must dig deeper with budget consolidation – watchdog

Czech government must dig deeper with budget consolidation - watchdog
© Reuters. FILE PHOTO: Czech Republic Prime Minister Petr Fiala delivers a speech as part of a joint press statement with Philippine President Ferdinand Marcos Jr., at Malacanang Palace, in Manila, Philippines, April 17, 2023. Ezra Acayan/Pool via REUTERS

By Robert Muller

PRAGUE (Reuters) – The Czech government needs to dig deeper than it plans to shore up the state budget which has fallen to record deficits, and must act fast as the next election approaches, a senior budget watchdog official told Reuters.

The centre-right government of Prime Minister Petr Fiala plans to cut budget deficit by 70 billion crowns ($3.29 billion)next year from the 295 billion gap penciled in for this year as the country emerges from the double hit inflicted by the COVID pandemic and war in Ukraine.

The government has been looking to cut spending and raise taxes to find the 70 billion, but Hampl said commitments to raise defence spending and teachers’ salaries add another 45 billion the cabinet needs to find.

“In terms of big changes, 2024 is the last window of opportunity”, due to an election coming in 2025, said Mojmir Hampl, chairman of the Czech Fiscal Council, an independent state budget watchdog.

Hampl pointed out that the 70 billion crowns represent only one third of the structural deficit – imbalance between budget spending and revenues regardless of the economic situation – estimated by the Council at around 200 billion crowns.

The government’s plan is therefore just a first step which needs to be followed quickly by more changes.

“It is appropriate, if (the effort) then continues,” Hampl said

He backed reform proposals by the government’s body of economic advisors – which Hampl is a member of – including raising personal income taxes by over 100 billion crowns.

“The proposals erase the structural deficit completely… I support all of them. The rest is up to the political leadership,” Hampl said.

The government has refused to raise personal income taxes – which were cut substantially by the previous centre-left cabinet with parliamentary support from Fiala’s Civic Democrats.

It has also declared it would not raise the overall tax burden by more than 30 billion crowns, including increasing the value-added tax on some items. The final proposals should be ready in a month.

“The consolidation efforts definitely can’t focus on spending only, that’s not doable,” Hampl said.

($1 = 21.2850 Czech crowns)

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