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Until now, pensioners were the only group that automatically increased with inflation. With the new state budget for next year awaiting approval in the House of Representatives, the situation will change. From 2024, the state will automatically increase the next three payments – and the largest of the entire budget.
These will be state payments for state insured persons to the health insurance system. Furthermore, the salaries of teachers in regional education. And also defense spending so that the Czech Republic fulfills its obligations arising from membership in the North Atlantic Alliance.
“We are quite nervous about this, because these four expenditure items, pensions, education, healthcare and defence, happen to be the four largest in public finances,” says Mojmír Hampl, chairman of the National Budget Council in an interview with Agenda SZ Byznys.
According to Hampel, the aforementioned items received an endless blank check for more money from the government. On the other hand, there will be less left for other items.
“Government expresses its priorities by giving an item of expenditure an infinite privilege, that this item of expenditure will automatically increase by some amount without further political discussion.”
According to the draft of the state budget for next year, mandatory expenses should amount to 1,347 billion crowns and will account for 70 percent of all income.
It is practically impossible to get out of the vicious circle of mandatory expenses. At least no western country has managed to do it yet. “To imagine that the automatic valorization will one day disappear is politically almost impossible. We have not found any western democratic country in which there has been a deindexation (cancellation of automatic valorization, ed.) of any significant expenditure item.”
State budget balance 2023 vs. 2024
|Budget 2023||Budget 2024||Difference|
Here they cut, elsewhere they sprinkled in again
In the consolidation package, the government painfully cut spending in the amount of billions and raised taxes in several places, but a large part of the government’s consolidation efforts will be absorbed by the new expenses, the Budget Council stated.
The structural deficit that the Czech Republic carries with it, regardless of whether there is a recession or a boom, will improve only slightly next year. We will still have to borrow even for completely mundane expenses.
Finance Minister Zbyněk Stanjura (ODS) expects the structural deficit to be 2.2% of GDP. “We think that we can get below some two and a half percent, that this is realistic,” comments Hampl. Back in May, when the five chairmen of the coalition parties presented the consolidation package on a press release, they claimed that they would reduce the deficits of all public finances below two percent in the next year.
The government also plays magic with tax revenues
Next year, the government wants to manage a deficit of 252 billion crowns. According to Hampel, the deficit written on paper is not “true”.
It alludes to 18 billion crowns, which the government has transferred to the state transport infrastructure fund. “We consider this a bad practice. All classic state expenses should appear transparently in the expenses of individual budget chapters. The deficit should be transparent and truthful about this.”
The government has announced that it will also make savings through cuts in national budgets. However, it only transferred the fees for renewable resources back to companies and households. According to Hampl, this will increase the tax burden on Czechs. “The composite tax quota will rise by a few tenths of a percent,” says Hampl.
The head of the Budget Council also sees gaps on the revenue side for next year. According to him, the government has less than 19 billion crowns in the proposal, which have no business there. This is income from taxes and insurance premiums, which, however, were not approved as standard by the Committee for Budget Forecasts, specified Hampl. “If you respected proper budgeting practice, such additional income could not arise.”
Moreover, it is income that may not come. “There is no reason to assume that major new information about the expected tax and insurance collection in 2024 emerged during September, which was not available at the end of August,” writes the National Budget Council in its statement on the draft state budget.
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