Czech government approves 2015 budget draft

22-09-2014

Prime Minister Bohuslav Sobotka’s centre-left cabinet on Monday unanimously approved the draft of the 2015 state budget. The proposal envisages a deficit of 100 billion crowns, i.e. 2.3 percent of the GDP, a wage hike for civil servants and a small increase in pensions.

Photo: Barbora KmentováPhoto: Barbora Kmentová Prime Minister Bohuslav Sobotka was in an upbeat mood as he told journalists that in drafting the 2015 state budget his center-left government was delivering on its promises. The proposal envisages expenditures of 1.219 trillion crowns and revenues of 1.119 trillion, thereby creating a deficit of 100 billion crowns which would keep the gap in public spending below the required three percent of GDP.

The proposal recons with a wage hike for civil servants, a small increase in pensions, more generous tax reliefs for families with two or more children and a lower -10 percent - VAT on medicines, books and baby food. Individual bills reflecting these changes are now being debated in the lower house.

The prime minister noted that due to a lower than expected deficit in public spending in 2014 –which was originally projected at 112 billion crowns and is expected to be at around 90 billion – the government was proposing a 3.5 percent wage hike for civil servants two months ahead of the planned increase – as of November of this year. The prime minister said the hike was a pro-growth measure intended to increase consumer spending and aid the economy.

The draft proposal envisages scrapping direct payments for health care, a 200 crown increase in old-age pensions on average, and higher state contributions towards health insurance for children, senior citizens, students and the unemployed. Teachers and emergency workers can also look forward to a five percent increase in pay as of January next year.

The Ministry for Regional Development got the highest increase in funding –a year-on-year increase of almost 26 percent – with a proposed budget of 14.7 billion crowns while the Environment Ministry faces the biggest drop in financing a 28 percent decrease year-on-year to 9.4 billion.

The budget proposal will now go to the lower house for debate. Analysts have already criticized it for not using the stronger than expected economic growth to further reduce the gap in public spending rather than increasing wages and pensions. Pavel Sobíšek from UniCredit Bank notes that the unexpected economic growth in past months was triggered by a combination of macroeconomic factors – a revitalization in the automotive industry, zero inflation and the devaluation of the crown –which may not be in effect for long and the government should have made better use of the opportunity they afforded. He says the government will have to work that much harder in the coming years to meet the commitments of the Fiscal Compact.

After winning approval in the lower house the 2015 budget will have to be signed into law by the president. Although right wing opposition are likely to dispute some spending proposals and echo the sentiments of analysts, the government’s majority in the lower house should secure its smooth passage and President Miloš Zeman has already said he approves of the proposal and will sign the bill into law.

22-09-2014