Business, Politics, and Analysis

search
September 3, 2018 12:00 am | FILED UNDER: opinion

Finance Minister Schillerova Ignores Economic Warning Signs, Drafts Irresponsible Budget

By ČTK Alena Schillerova

Prague, Sept 3 (CTK) – Alena Schillerova (for ANO) is another Czech finance minister in a row to draft a new state budget irresponsibly, regardless of the warning signs of the latest economic development, Petr Musil writes in Tyden weekly out today, referring to the ministry-proposed 2019 budget bill.

 

The Czech economy probably reached its climax in the second quarter of 2018, when the GDP growth dropped by about one half year-on-year. This is the surfacing effect of what various macroeconomic indicators, mainly the unnaturally low unemployment rate, have signalised for several months – that the Czech economy has reached its limits, Musil writes.

 

The only institution to have reacted to this was the Czech National Bank (CNB).

 

The cabinet, which is the second most important creator of the national economic policy, has been doing as if nothing were happening.

 

Schillerova’s Finance Ministry submitted a 2019 budget bill originally projecting a gap of 50 billion crowns, which it most recently reduced to 40 billion.

 

Schillerova’s predecessors in the post in 2014-17, [current PM] Andrej Babis and Ivan Pilny (both ANO), drafted the 2018 budget bill in a similar way. Subsequently they boasted that the final budget result was better than projected.

 

In fact, however, such planning shows that the budget authors took no special effort to complete it but only swam on the wave of the recent economic growth. Since the latest crisis, the ministers have wasted ten years of a chance to change the structure of public finances to secure their appropriate functioning, or make them work as an economic stabiliser instead of stirring up the economic cycle, Musil writes.

 

Now that the Czech economy is slowing down, Schillerova has no other arguments than “We don’t expect an economic crisis, we have our predictions.” This proves that the state budget is not in a good manager’s hands.

 

It seems that the situation in this respect remains unchanged since the late 2008, when then finance minister Miroslav Kalousek (Christian Democrats, later TOP 09) asserted that the Czech economy would only slow down [amid the world crisis] but would not be hit by a crisis itself. However, a crisis did come in 2009, with the GDP falling by nearly 5 percent as against the 3-percent rise in 2008, Musil writes.

 

“We do not expect a steep fall,” Schillerova says now. In 2009, however, her predecessor did not expect any either, Musil writes.

 

One wonders why the latest three finance ministers failed to learn a lesson from Kalousek’s wrong economic estimates. In doing so, they could have shown their ability to do it better. It would have been enough for them to read a single chapter from the textbook for the university students of economics, Musil writes.

 

They did nothing alike. Instead, they made the state budgets heading into a blind alley, as Kalousek did in 2009. The then budget gap of almost 200 billion crowns eventually required unpleasant budget cuts and an increase in taxes. These measures were more painful than if the budget structure had been changed in the previous period of growth, Musil writes.

 

If Schillerova does not care about the state finances, she should at least consider the “logical” fate of Kalousek as a minister who started tackling a budget fire only after he lost control of it, Musil writes, probably alluding to TOP 09’s political decline in recent years.

 

However, there is no logic in Czech politics any more. Parties’ preferences no longer depend on how responsible governors they are but on the financial sums they promise to voters. As a result, politicians are permanently speaking of raising pensions and civil servants pay now, one month ahead of the Senate and local elections.

 

This is a general problem of politicians that their thinking never crosses the horizon of the next elections, Musil writes.

 

He recalls the long-lasting debate on a badly needed pension system reform. The only attempt at such a reform, from the early 2010s, was swept away by the cabinet of the Social Democrats (CSSD), ANO and the Christian Democrats (KDU-CSL) in the previous election term.

 

Problems with the pension account are expected to palpably surface only around 2050. Who from among politicians would take interest in this today? Musil asks in conclusion.

%d bloggers like this: