At the start of 2009, I wrote that GDP would fall 1% by the end of the year, and I was the biggest pessimist in the country. Today we would be happy if my estimate were close to the reality. This year’s economic drop will exceed 3%, industrial production will plummet 15%-20%, and the public finances deficit will fall to 5% of GDP. Our recession will last deep into 2010, and overcoming it depends more on external circumstances.
What can be done? The private sector should spend more, while the state should save more. The former is a wishful thinking in our uncertain times, but the latter is a necessity.
We will not be able to initiate a more effective use of public finances straightaway. It is a pity we did not work on it during the five years of strong economic growth. We won’t change anything immediately: Public servants duck in the hope that it is yet another storm they will weather out, parasites of social benefits will continue to draw on relief, public projects that are not suspended will remain unnecessarily expensive.
An intuitive estimate claims that the state administration could save up to one-fifth of the costs, but it requires courage – to take away many useless activities from the state bodies and to increase the salaries of high-quality employees.
Neither of the main political parties will allow the temporary government to touch the expenses in the social sphere when putting together the budget. That area, however, represents an important political topic for future years: to explain to people that current social securities are unsustainable. Primarily, the expenses are growing enormously (in 2012 the Labour Ministry will take up half of the state budget expenses), and most of all, they lead to a certain degeneration of society. A significant proportion of the social benefits go to people who work illegally or simply do not want to work. The growing number of young graduates is rather lax or altogether passive in looking for jobs and remain convinced that the state has an obligation to look after them. Psychologists and sociologists could certainly describe it in better words, but the conclusion that springs to mind is that one part of society is apathetic and lazy and the current system of social benefits supports such behaviour. Future governments need to find the courage to withdraw these securities from the parasitic groups and give more to those who really need it.
Comparative study shows that the costs of public projects are unnecessarily high in the Czech Republic. It is difficult to write about (since I cannot prove anything), but the decision-making concerning these projects is accompanied by too many indications of corruption. A change would reap two positive results. The state would be able to build more for the same money. Moreover, it is difficult to lower social payments to people when they think corruption is present everywhere.
Adjusting the structure of public expenses must reflect upon the changes that society considers to be priorities. The current crisis, future economic developments, demographic trends and a number of other circumstances show that if we want to be a successful and dynamic country, the structure of public expenses needs to undergo fundamental changes. So far, unfortunately, it looks like the politicians are fighting different battles before the autumn elections.
The author is an advisor at the investment bank Goldman Sachs. He was a minister focused on finances in the first post-communist cabinet and then again after the Czechoslovak split, and is currently a member of the National Economic Council.
