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Czech finance minister sees 2020 budget gap below target, to keep taps open in 2021

PRAGUE, Oct 2 (Reuters) - The Czech central state budget deficit should come 20% below its amended 2020 target, provided the country can contain a new wave of coronavirus infections without shutting down the economy, Finance Minister Alena Schillerova said on Friday.

Following several revisions to account for the coronavirus crisis, the deficit goal has been pushed to 500 billion crowns or 8.8% of GDP from the original 40 billion target, but Schillerova said the budget was on track for a 400 billion crown shortfall.

“If there won’t be any blanket measure, (and) we don’t want to shut the economy... I venture to say that it will be around 400 billion,” Schillerova told Reuters in an interview.

The Czech government has called for a state of emergency from Oct. 5 and imposed renewed curbs on gatherings and public events to combat a surge in infections.

Next year’s deficit may be close to the 2020 level and above what her ministry has pencilled in, because of additional tax cuts meant to bolster consumer spending, she said.

The Czech economy is expected to contract by 6% to 8% this year after it went through a partial lockdown following the initial COVID-19 outbreak this spring.

For 2021, when a general election is due, the finance ministry plans a deficit of 320 billion crowns, which accounts for a scrapped real estate transfer tax, higher pensions and teachers’ salaries and increased spending on health.

The proposed deficit could swell by another 60 billion if the minority government manages to push through an income tax cut, Schillerova said.

“We will support the economy, we will support the people so that they won’t be afraid to spend money,” she said.

Critics say that while boosting spending this year was correct, an anticipated economic rebound means spending should be getting closer to normal and the proposed budget breaches legal limits and leaves no room for unexpected spending.

Schillerova said, however, next year’s 3.9% growth forecast should be seen in the context of this year’s dramatic collapse.

“The 3.9% is a beautiful growth in a boom, but when you climb from such a cellar, where we are now, then ... it is not such a win,” she said.

The Finance Ministry estimates that this year’s and next year’s central budget deficit will bring the nation’s public finance gap to 42.7% of gross domestic product in 2021 from 30.2% in 2019. Schillerova did not see a reason for concern.

“We are still below the debt-brake,” she said, referring to a law which says that once public finance gap exceeds 55% of GDP, saving measures must kick in. (1 euro = 26.8439 Czech crowns) ($1 = 22.9280 Czech crowns) (Reporting by Robert Muller Editing by Tomasz Janowski)

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