200 billion Czech crowns, the deficit recorded by the state in April 2023
What caused the deficit?
In the first four months of 2023, the Czech government recorded revenues of CZK 534 billion, which translates to an 11.4% YoY increase (year on year), while expenditures amounted to CZK 734 billion, representing a YoY increase of 26.7%. The dynamics just described have resulted in a cash imbalance of CZK 200 billion, which is the worst result since the birth of the Czech Republic. The Finance Minister, Zbyněk Stanjura, explained that the larger deficit in these first months is mainly due to the increase in so-called social spending, i.e., spending related to pensions, social benefits, and compensation that the state granted for the increase in energy prices. The same minister expressed confidence in the future, highlighting how revenues from dividends, European funds, and active contingencies, especially, will help.
Expenditure and Revenue Dynamics
The main burden that the state had to bear was the 52 billion increase in social benefit expenditures compared to the previous year. The total social spending amounted to CZK 288.5 billion, a 17.3% YoY increase. Most of this spending is due to pensions, which represent 78.3% (CZK 225.9 billion) of social spending, and pension spending increased by 19.9% YoY. Compensation for the increase in energy prices absorbed CZK 52.3 billion, while spending on state debt service increased by 150% to CZK 23.1 billion. State investment spending increased by 84.6% compared to the previous year, with CZK 18.9 billion spent on infrastructure financing and CZK 8.9 billion spent on guaranteeing the “New Green Savings” program. The revenues recorded in the first four months were mainly due to the collection of compulsory insurance premiums, which yielded CZK 222.5 billion to the state, an increase of 10% YoY. Another substantial revenue item is the value-added tax, which amounts to CZK 117.5 billion (8.1% compared to the same period last year). Consumption tax decreased by 7.4% to CZK 43.4 billion. Personal income tax allowed the state to collect CZK 38 billion, while corporate income tax yielded CZK 37.6 billion. Finally, CZK 8.5 billion entered state coffers thanks to the forced levy on extra profits of electricity-producing companies. The reason for this deficit seems to be due to slower income growth compared to inflation. In fact, six incomes had a growth rate of 11.4% compared to the previous year, while inflation, according to estimates, exceeded 15% compared to last year. This dynamic explains the increase in spending and the decrease in state revenues. Inflation dynamics are explained through the graphic chart below, as the graph demonstrates, inflation has rised over the past 10 months to 15%.
(Source: https://www.czso.cz/csu/czso/home)
Forecasts for 2023
The state has predicted revenues of CZK 1.93 trillion and expenditures of CZK 2.22 trillion, creating a deficit of around CZK 295 billion. These estimates, according to economists, could be disregarded due to extraordinary spending related to further appreciation of old-age pensions, amounting to CZK 15 billion. The situation could be further aggravated by the estimated contained growth of the domestic economy, which will weaken the dynamics of tax revenues. In May, the government may present a so-called “consolidation” package aimed at developing and improving the local economy, which could have an impact on the budget.”
Source: https://www.patria.cz/; https://www.kurzy.cz/
Source of images: https://pixabay.com/
Graphic Source: https://storyset.com/
