Czech budget gap at record $9.3 billion in Jan-April on social spending, energy subsidies

PRAGUE (Reuters) – The Czech Republic’s budget deficit doubled to 200 billion crowns ($9.30 billion) in January-April, a record for the four-month period and reaching two thirds of the full-year target, raising doubts the plan will be met.

Overall expenditure rose 26.7% due to higher social costs including pensions and subsidies to bring down energy prices – increasing the spending by 88.8 billion crowns combined.

The state also paid higher interest on inflation-related government bonds as consumer prices continued to surge, with inflation standing at 15% year-on-year in March.

Budget revenue increased by 11.4% and did not cover the higher spending as the government has collected less than expected from a windfall tax on energy firms and banks.

Finance Minister Zbynek Stanjura remained optimistic regarding the 2023 budget performance.

“I expect the state’s performance to improve significantly from the middle of the year at the latest, thanks to additional income from dividends, European (Union) funds and windfall-profit revenue,” he said in a comment on the budget figures.

The government targets an end of year deficit of 295 billion crowns for 2023.

The five-party centre-right cabinet has been debating a list of spending cuts and tax hikes to cut the budget deficit by 70 billion crowns next year – which means finding well over 100 billion, because the government has also committed to raise defence spending and teachers’ salaries next year.

Stanjura said part of the fiscal consolidation measures, due to be presented this month, could already be applied this year. However, the results so far – especially the lower-than-expected windfall tax income and a levy on electricity sales prices – mean analysts are sceptical that the deficit target will be met.

“We expect a deficit of 315 billion crowns in our baseline scenario,” Komercni Banka economist Jaromir Gec said in a report. “However we see a risk tilted toward an even deeper deficit in relation to a significant downward revision of expected windfall tax revenue.”

The ministry has cut the expected revenue from the windfall tax and electricity cap by 60% to 40 billion crowns.

It forecasts the public sector deficit – including the state budget, regional and municipal budgets and the public health system – will reach 4.2% of gross domestic product in 2023, versus 3.6% in 2022.

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