Czech central state budget hits record surplus in 2016

Czech central state budget hits record surplus in 2016
Finance Minister Andrej Babis tried to claim credit for the surplus for his Ano party.
By bne IntelliNews January 3, 2017

The Czech central government budget finished 2016 with a record surplus of CZK62bn (€2.3bn), Finance Minister Andrej Babis confirmed on January 3.

The high surplus, predicted throughout recent months, is the first since 1995, and the highest since the Czech Republic was established in 1993. However, the final result is well above market expectations of an excess of CZK20bn or so.

The better-than-expected central government budget result is likely to push the overall balance into surplus also, Babis said at a press conference, according to Reuters. The Czech Republic has recorded three budget surpluses in its history. The budget surplus dropped 40% in monthly terms to CZK55.5bn (€2.05bn) in November. Full results are due in April.

Babis, who recently pushed through a fiercely contested bill to introduce electronic cash registers, credits improved tax collection – including that of VAT – as the main factor behind the rise. The Ano chief, whose party has recently extended its lead over coalition leader CSSD with elections 10 months away, proclaimed in September that a full-year surplus is now certain, despite a traditional rise in spending in the fourth quarter, and that a new record is due.

Revenue for the central government budget was CZK101bn above target, including a CZK65bn bonus in EU fund inflows, the ministry said. Spending was CZK31bn below plan.

However, Prime Minister Bohuslav Sobotka will also seek to grab a slice of the credit. Alongside Babis’ tax improvements, economic growth, dwindling unemployment, cheap state borrowing costs, and a fall in government investment due to still slow absorption of EU funds have helped shrink the fiscal gap.

"The government achieved a budget surplus thanks to economic growth, rise in employment and high income from the EU budget," Sobotka was quick to announce on Twitter.

Last year’s budget plan envisaged a deficit of CZK70bn, while the 2017 budget targets a gap of CZK60bn, or around 0.5% of GDP. While lower than the target for 2016, critics point out that the gap appears less than ambitious, and note that it is an election year.

The quashing of the deficit is a somewhat curious boast for the two coalition parties to fight over. Their government was swift to reverse the harsh austerity policies run by the previous centre-right administration headed by the ODS, which has since seen support collapse. Meanwhile, economic growth sparked back into life in 2014 following two years of recession.

Babis has been quick to deny that he has overseen a fresh round of austerity to achieve the surplus. "We are often criticized for the fact that we spend less, but you should know that we are already over budget,” said the finance minister, according to Hospodarske noviny. “Compared to the approved budget, we have invested as much as CZK6bn more. So the criticism that the budget is good because we spend less, does not stand up.”