The hunk grew up. What does the new normal for public budgets look like?

The hunk grew up. What does the new normal for public budgets look like?
The hunk grew up. What does the new normal for public budgets look like?
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“Return to normal.” With these words, Minister of Finance Zbyněk Stanjura commented on the results of the state budget in March. It is no longer affected by extraordinary influences, as was the case during the pandemic and energy crisis. The data published on Monday by the Ministry of Finance and the Czech Statistical Office (ČSÚ) shows what this new normal will look like. A lean state without unnecessary bureaucracy, and if possible with low taxes, traditionally belongs to the program documents of center-right governments.

Despite this, the revenues and expenses of the Czech state have been continuously growing in the past decades. From a level below 38 percent of GDP, where incomes held at the end of the last century, it became 40 percent during the financial crisis a decade ago. Last year, according to the first estimates, the barrier of 42 percent was breached. The only exceptions to the rule were the extraordinary years of 2003 and 2004, when the state completed privatization, unblocked the Russian debt, and the ministries at the same time transferred unspent money from previous years to reserve funds.

The requirements of the welfare state, including the strengthening apparatus, contributed to the fact that the growth of state income is ahead of the growth of the economy. These demands grew especially in times of crisis, when even right-wing governments had to cover the demands of the threatened population. However, the state’s income was not cut even in times of prosperity. Back then, on the contrary, mainly left-wing politicians used the increase in social spending as an effective political weapon. Expenditures reached a historic record in the period of the pandemic after 2019, when the Czech state distributed generous subsidies to companies and households, and later the authorities tried to protect citizens and entrepreneurs from high energy prices.

Today, therefore, it is already possible to suspend emergency aid and subsequently also reduce state revenues – at least in theory. In fact, however, this is almost impossible, pointed out the annual report of the Supreme Audit Office (NAO). She reminded that domestic laws prescribe the government what share of GDP it must spend on the military or healthcare, or how much it must increase pensions. These expenditures, which are referred to as mandatory, amounted to 75 percent of all state expenditures before the crisis.

During the four crisis years, they grew as fast as the entire state budget and contributed the lion’s share to its record deficits. “Budget deficits need to be reduced, but this is hindered by the amount of mandatory and quasi-mandatory expenses,” summarizes the current state of the SAO. So if the government is going to reduce the deficit, it cannot afford to let revenues fall below the level of the “new normal”, i.e. below 42 percent.

And the Ministry of Finance apparently accepts this necessity. On the one hand, this year it can stop subsidies for energy and, despite the increase in other items, including pensions, thanks to this, expenses can be kept at roughly the same level as last year. However, state revenues will grow, even at a significantly higher rate than the economy as a whole. According to the prediction of Stanjur’s ministry, the economy will nominally grow by 3.9 percent this year. At the same time, in the first three months of 2024, income from taxes and European subsidies grew at a threefold rate.

The article is in Czech

Czechia

Tags: hunk grew normal public budgets

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