Trade unions expect Czech GDP to drop by up to 1.5% in 2013

Prague, Sept 21 (CTK) - Czech CMKOS umbrella trade union organisation expects gross domestic product (GDP) to drop by 1.0 to 1.5 percent in real terms next year, which would mean a direct fall in state budget revenues of Kc20bn to Kc25bn, CMKOS said at a press conference Friday.

The Finance Ministry expects GDP to expand by 1 percent in real terms in 2013.

The ministry reckons with a budget deficit of Kc100bn for next year. A condition for the Kc100bn deficit is an approval of proposed tax changes.

"We cannot agree with a state budget draft set in such a way and we will inform the finance minister and the prime minister about it at the tripartite meeting on Monday," CMKOS chairman Jaroslav Zavadil said.

The total financial risks of the proposed state budget could amount to between Kc45bn and Kc60bn, said CMKOS expert Martin Fassmann.

Apart from the estimate of the basic budget parameters, among the risks is also the expected volume of value added tax (VAT) collection and the launch of a pension reform, Fassmann said.

"The word that describes best this budget is instability," he said.

"Forget about salary and wage growth, that's what this draft is telling us. We are convinced that poverty will increase," said Zavadil.

The basic shortcoming of the budget draft is the fact that its revenues side as well as its expenditure side are based on the effect of laws that have not been approved yet, he added.

The government has to approve the budget and submit it to the Chamber of Deputies, the lower house of the parliament, by end-September.

Prime Minister Petr Necas said earlier that if the cabinet discusses transfers of money in the budget, these transfers will be only cosmetic changes in the order of billions of crowns.

However, there is no agreement yet about the tax package which contains laws with whose effect the budget reckons with. The growth in VAT is criticised inside the senior ruling Civic Democrats (ODS) and the government will not push it through in the lower house without support of the critics.

Representatives of ODS leadership and the rebelling deputies will hold talks about the form of the tax changes this afternoon.

The law on the state budget describes only a section of what will in reality happen in public finances as well as in the private finances of each citizen, Fassmann said.

The government intentionally withholds complex information about the real development of all parts of public budgets for next year, that is how these measures will affect the budgets of regional governments, municipalities and health insurers, according to Fassmann.

These budgets will suffer the impacts of the VAT increase because the hike will raise costs of public services financed from them, Fassmann added.

Zavadil expressed surprise over the words of the finance minister who in the past days spoke about the expected participation of more than 60 percent of economically active citizens in the pension reform, which would have an annual impact on the state budget equal to more than Kc20bn.

But the state budget draft reckons with pension reform costs of only Kc6bn, which would mean that less than 15 percent of active population would take part in the reform.

The Finance Ministry plans the total expenses of the 2013 budget at almost Kc1,185bn and revenues at Kc1,085bn. This year, expenditures are planned at almost Kc1,190bn.

The budget draft expects that teachers' salaries, for example, should rise by around 1 percent on average next year.

The Czech National Bank (CNB) has revised downward its outlook of economic development for this as well as next year in its August forecast.

The central bank expects the economy to contract by 0.9 percent this year, but for next year it reckons with a 0.8 percent growth.