© Stocksak. FILE PHOTO – People walk along a Prague street, Czech Republic, December 28, 2020. REUTERS/David W Cerny
PRAGUE (Stocksak). – The Czech parliament gave its first approval to the 2023 state buget bill. It set the deficit at 295 Billion Crowns ($12.1B) as the country deals with the soaring energy prices, and other consequences of the war.
The planned deficit, which represents the bulk of the total public sector fiscal balance, is 4% of the country’s gross domestic product as estimated by the Finance Ministry in 2023.
Independent economists have been criticizing the centre-right government because it has not done enough to slow the growth in debt. This is also due to rising pensions and other non-related costs.
The Czech Republic’s debt in 2021 was less than half of the average European Union average at 41.9% of GDP (GDP). However, the increase in year-on-year debt of 4.2 percentage points was the highest in the EU last fiscal year, according to a report published by the Supreme Audit Office of the Czech Republic in August.
Despite the fact that the deficit in 2023 is less than the 375-billion-crown budget gap approved to 2022, opposition politicians said the government should raise income or property taxes or find ways to reduce structural budget shortfalls.
The government’s primary attempt to increase revenue comes from the windfall income tax on profits in energy and banking sectors starting in 2023. The government expects to collect $3.4 billion next year. It is possible that this bill will be voted upon next week.
The Czech Fiscal Council, an independent expert group appointed by parliament, criticized the government for inflating its budget.
“The Czech economy is facing high levels of inflation. This is due to the expansionist fiscal policy that was implemented in recent years. The Council stated that maintaining this expansion… extends inflation’s process.
Inflation rose to 18% during September. Fiscal policy has been a focus of some central bankers, as it could hinder the central bank’s efforts at taming price growth.
Eva Zamrazilova, Vice-Governor of Czech National Bank, was quoted as saying this week she was worried about the 2023 budget bill.
She said that “it is a factor that will probably result in interest rates having to stay for longer at a lower level than planned a year back,” in an interview published Wednesday by Mlada Fronta Dnes newspaper.
The bank raised its main interest rate to 7%, and yields for government debt reached nearly 6% during the 10-year tenure. This has led to higher debt servicing costs.
Prime Minister Petr Fiala has pledged that the government will bring the public finance deficit down to 3% of the EU-target EU-target by 2025. Public finance includes, in addition to the central budget, regional budgets as well as various state funds.
In 2021, the gap in public finances was 5.2% of GDP.
($1 = 24.4230 Czech crowns)