ČR's 2012 budget revenues CZK 42.6bn lower than expected

Prague, Jan 3 (CTK) - The Czech Republic's budget revenues in 2012 were Kc42.6bn lower than the optimistic budget scenario expected, and austerity measures in expenditures amounted to Kc47bn, Finance Minister Miroslav Kalousek told journalists yesterday.

The government had been aware of the fall of revenues, which is why it increased the savings.

The 2012 state budget ended in a deficit of Kc101bn, while the approved budget plan had expected a gap of Kc105bn.

"The macroeconomic forecast deteriorated steeply in autumn 2011. It became clear that tax revenues will be lower than stipulated in the budget documentation. We had forewarned about this in the process of the budget approval and promised that we would make relevant corrections on the basis of the January prediction, which we did in March. Thanks to these savings we fulfilled the deficit plan with a sufficient reserve," Kalousek said.

According to unofficial data, the ratio of the budget deficit in gross domestic product (GDP) will reach 3.5 percent, as desired by the government, Kalousek said. Including a one-off accounting operation of Kc57bn for church restitutions, the figure will be 5 percent of GDP, Kalousek added.

"The government fulfils the plan of deficit cuts which investors see as an essential basis of future prosperity and charge us a low risk premium. Our borrowing costs are the lowest among the countries in Central and Eastern Europe," said Kalousek.

Besides cuts in operating and wage costs at the ministries, Kalousek emphasised cuts in social benefits of Kc10bn.

"I am glad that the social reform has proven effective," Kalousek said.

The reform "aims to make systemic changes and target money at those who really need it," he added.

Overall budget expenditures amounted to Kc1,152bn last year and overall revenues totalled Kc1,051bn.

Tax revenues stood at Kc540.3bn, up by Kc17.2bn on the year.

The state collected Kc199.7bn in value-added tax (VAT), an annual rise of Kc7.8bn. VAT collection in the second half of the year was better as VAT revenues grew by Kc10.2bn or 7.3 percent in annual terms.

"The final figures for last year totally refute the claims that the increase of a reduced VAT rate as of January 1, 2012 is behind the lower-than-expected VAT collection," the ministry said in the press release.

Consumption in the reduced tax bracket has not decreased, or just very little. Like in most European countries, consumption of goods subject to the standard VAT rate has fallen.

Consumer behaviour has changed due to economic uncertainty, Kalousek said.

This year, budget deficit is expected to fall to Kc100bn.

"We've got no information on the basis of which we would consider taking extraordinary measures this year," said Kalousek.

He described as positive resolving of problems with drawing EU money. The difference between the amount drawn from the EU and payments to the EU budget represents the biggest positive net position in the country's history. It will exceed Kc70bn this year. Last year it was Kc30.7bn.

The opposition has criticised the budget, saying the government has resigned from efforts to boost economic growth.

The price for last year's state budget deficit of Kc101bn is relatively high, shadow finance minister Jan Mladek of the opposition Social Democrats (CSSD) told journalists yesterday.

The government has put a dampener on the economy and prompted its contraction, Mladek said.

"It is the government's undisputable success that it has managed to prevent exceeding of the planned deficit despite the marked deterioration of the economic situation which has lowered tax revenues by tens of billions of crowns," UniCredit Bank analyst Pavel Sobisek told CTK.

By expenditures, the government has to be praised for its good estimate of wages and pensions. It can also take a partial credit for cutting the costs of debt servicing. Lowering the transfers to state funds, which means less money for investments into the infrastructure, is less favourable, he added.

In 2011, the state budget ended in a deficit of Kc142.8bn, while the plan had expected a deficit of Kc135bn. The gap was higher due to problems connected with drawing EU funds. Without this influence, the state budget would have posted a deficit of about Kc130bn.

Czech economic performance (in Kc bn)
year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
deficit -46.061 -67.705 -45.716 -109.053 -93.684 -56.338 -97.580 -66.392 -20.003 -192.394 -156.416 -142.771 -101.000

Source: Finance Ministry