Andrej Babis


Babis Flip-Flops On State Budget: Plans To Run Up Deficit

Andrej Babiš

Prague, June 11 (CTK) – Czech Prime Minister Andrej Babis (ANO) is planning a state budget with a deficit for next year despite the economic growth and at variance with his previous rejection of budget deficits, Jiri Nadoba writes in weekly Respekt out today.


The Finance Ministry submitted the first draft of the 2019 state budget to the other ministries last week. Babis wants to complete the government debate on the draft budget with a deficit of 50 billion crowns this week.


The planned new coalition government of the ANO movement and the Social Democratic Party (CSSD), which Babis would like to start working in July, is unlikely to make marked changes in the next year budget.


The main outlines of the country’s financial plan for 2019 seem very positive: it expects the economy to keep running well, which is to bring a record increase in tax revenues and more money for spending.


When the businessman Babis entered politics in the early 2010s, he often criticised the practice of spending not only the money the state received in taxes but also taking loans to cover a budget deficit that leads to the increase in the state debt. “A deficit is a loss. If anybody prepared a business plan with a loss, I would sack him,” Babis said resolutely in 2011.


In 2014, Babis became finance minister and said the Czech Republic can have a balanced budget by 2017.


Babis’s idea of a balanced budget appeared in the first version of the government policy statement of the emerging coalition cabinet, on which he agreed with the CSSD in May. However, elsewhere in the policy statement it is said that a budget may have a deficit if the finances are spent on investment, which is a way to dodge the original promise.


“If there is a deficit, the investment must be higher, and this is the case next year,” Respekt quotes Babis as saying last week.


In the 2019 budget, 79 billion crowns are earmarked for investments.


Babis argues that the deficit is rather low in international comparison and that the Czech state debt is 35 percent of GDP, which is the fourth lowest in the European Union.


Moreover, he says a big step forward needs to be taken in motorway construction after several years when the building of motorways stagnated in the country.


According to economists, the planned deficit does not threaten the Czech economy in any way, but it is a question whether the government tried hard to save money at the time of economic growth.


“It is strange to have a deficit after four years of solid growth,” Komercni banka bank economist Marek Drimal told Respekt.


Sceptics note that there is almost no reserve in the Czech budget in case of an outbreak of a new economic crisis.


This year, the budget deficit is projected at 50 billion crowns, too.


The 2019 budget expenditures are projected at nearly 1,500 billion crowns, the largest parts of which is to go to pensions, welfare benefits and salaries of civil servants. All these three sums are to considerably increase next year, especially in education in which more teachers would be hired and their salaries would be raised by 15 percent. The Education Ministry is to get 26 billion crowns more than this year to cover the extra costs, which is one of the highest increases in the state budget.


The Labour and Social Affairs Ministry, which traditionally has the biggest budget of all offices, will receive 41 billion crowns more for pensions and welfare benefits in 2019. Pensions are to be raised by 918 crowns a month on average.


The total budget expenditures are to be 117 billion crowns higher than this year, which has been the highest year-on-year increase so far. The budget revenues are to increase by the same amount.


The state expects to receive 95 billion crowns more in taxes and insurance payments than this year, which is first of all the result of the pay raise and very high employment rate in the private sector – salaries in firms have been growing more than in the last ten years and the number of unemployed people has been the lowest in history. As Czechs have more money in general, they pay more in the value-added tax and the excise tax.


Babis’s government also wants to spend dividends from state-controlled firms such as the CEZ power utility in 2019. It cannot spend the dividends this year because the law does not allow for it in times of economic growth. Until now, the dividends could be used to cover the deficit of the pension account. Thanks to the economic boom, the is no pension account deficit this year and Babis wants to amend this law and use the dividends for other purposes. In 2019, the budgets plans to receive 21 billion crowns in these dividend, Respekt writes.