The Czech central budget deficit shrank by 46.7% on the year to CZK 38.2bn (EUR 1.5bn) in the first nine months of 2013 thanks to higher revenue from value added tax and EU funds, data from the finance ministry showed. The end-Sept deficit was the best result since 2008 and accounted for 38.2% of the full-year target suggesting that the government will likely be able to exceed the end-year deficit target of CZK 100bn. The gap, however, widened from CZK 36.21bn at end-August.

Total budget revenue in Jan-Sept 2013 grew by 6.5% y/y to CZK 806.4bn, accounting for 74.4% of the annual target. Revenue from taxes edged up by 1% y/y as VAT collection improved by 10.4% y/y to CZK 158.3bn, while excise taxes declined by 3.6% y/y. The rise in VAT revenue was partially thanks to a 1pp rise in both VAT rates as of Jan 1. Income from EU funds rose by CZK 29.8bn in the period. The revenue growth was also supported by a CZK 10bn transfer from a privatisation fund to cover a deficit in the pension system.

Budget expenditures also increased but at the much slower annual pace of 1.9% to CZK 844.7bn as of end-Sept, equalling to 71.3% of the annual plan.

In early September, PM Jiri Rusnok said he expects this year’s budget deficit to be smaller than the approved CZK 100bn thanks to higher inflows from the EU and better-than-expected VAT collection. The government targets the overall public sector deficit, including the central government budget, regional and local budgets, public funds and public health insurance, to account for 2.8% of GDP in 2013. It is forecast to slightly widen to 2.9% in 2014.