Czech Republic’s State Budget Deficit Narrows Slightly in July

Jan Handrejch

The Czech Republic’s state budget deficit reached 214.1 billion Czech korun ($9.7 billion) at the end of July, slightly down from June’s 215.4 billion korun, according to the Ministry of Finance data on Tuesday. This marks the second-worst result for the country’s state budget since establishing an independent Czech Republic. The deficit at the end of July 2020 was 192.7 billion korun.

The decline in deficit for the second month in a row is a positive trend, with the budget achieving a slight surplus of 1.2 billion koruna for July alone, an improvement of CZK 11 billion YoY. The Finance Minister, Zbyněk Stanjura, expects the positive trend to continue and said that the budget could reach the planned deficit of CZK 295 billion this year if savings of around CZK 20 billion can be agreed with other ministries.

The YoY deterioration of over CZK 21 billion was mainly influenced by the growth of spending in the social sphere (+CZK 75.1 billion) and help for citizens and firms with high energy prices (+CZK 51.1 billion). State debt service expenses were also higher YoY due to increased payment of interest income from anti-inflation state bonds (+CZK 11.9 billion) and higher investment (+CZK 12.7 billion), according to the Ministry of Finance.

At the end of July, budget revenues reached CZK 1.068 trillion, up 17.2% YoY. Expenditures at the end of July were CZK 1.282 trillion, up 16.2% YoY.

The higher collection of corporate income tax helped the budget’s revenue side. The state collected CZK 122.2 billion from this tax by the end of July, 37% more than the previous year. In addition, the state brings in additional income from the levy on excessive profit in electricity production, on which CZK 13.4 billion has been collected so far. Revenue from the windfall tax has not yet been reflected in the budget, and the due date for the first installments is in September.

The revenue from value-added tax for the state budget by the end of July was CZK 208.9 billion, up 5.9% YoY. The state gained CZK 80.2 billion from income tax on individuals, 24% more than last year. Insurance contributions for social security increased by 9.2% YoY to CZK 397.5 billion.

The state collected CZK 82.1 billion from excise duties, 6% less than last year. This is due to the change in consumer preferences for tobacco products and the reduced excise duty on diesel, which, however, returned to its original level in August. According to the Ministry of Finance, the decrease in tax revenue in this area should be offset by the end of the year.

Social benefits were the most significant item on the expenditure side of the budget, with the state paying out CZK 503.5 billion. Of this amount, CZK 395.9 billion went to pensions, which increased by 18.9% YoY.

At the end of July, capital expenditures reached CZK 95.2 billion, up 15.4% YoY. The largest share of these expenditures was directed toward financing the transportation infrastructure, which accounted for CZK 29.4 billion. Capital expenditures were also directed toward purchasing defense ministry investments or the New Green Savings program.

Last year’s budget ended with a deficit of CZK 360.4 billion. For this year, the government expects a deficit of CZK 295 billion. The worst month for this year’s budget was May, when the deficit reached CZK 271.4 billion. However, the deficit decreased to the current CZK 214.1 billion during June and July.

The positive trend in the decline of the deficit is expected to continue, with the Finance Minister planning to propose cuts of CZK 15 to 20 billion by the end of the summer to meet the planned deficit for the year.