State expenditures grew this year, but it wasn’t for investments

The intention of the previous government of Prime Minister Andrej Babiš (ANO) to invest its way out of the crisis remains unfulfilled. In the first half of the year, the state budget expenditures increased by CZK 83 billion, but this was only due to the growth of current spending. On the other hand, investment spending fell by CZK 5.3 billion year-on-year, and its budget was less than a third spent by the half-year.

This was stated by the president of the Supreme Audit Office, Miloslav Kala, in the SAO’s opinion on the government’s report on the implementation of the state budget for the first half of the year. However, former Finance Minister Alena Schillerová (ANO) points out that the spending on investments is irregular during the year.

According to Kala, the most significant drop in investment spending occurred in transferring investment money to state funds, and 90 percent of it was related to transport. “There is a fundamental problem with program funding, where the SAO said there is a risk of underspending a significant part of the funds at the end of the year,” he said.

Kala mentioned that the growth in current budget spending was mainly due to business and employment support related to the COVID-19 epidemic, increased state payments for state insurance, transfers to regions, and social benefits. He also pointed to the growth in mandated spending, whose share of state revenue increased to almost 70 percent in the first half of the year. In contrast, as recently as 2019, mandatory spending accounted for 55 percent of state revenue.

The state budget ended the half-year with a deficit of CZK 265 billion, the worst result in the country’s history. Year on year, the deficit worsened by almost 70 billion. The SAO admits that the anti-epidemic measures and their accompanying effects have significantly impacted the budget since last spring. State budget revenues for the first half of 2021 rose by less than two percent year-on-year but were not enough to cover the more than nine percent increase in spending, the office said.

On the other hand, the authority points out that revenues from social security premiums increased by more than 21 billion year-on-year in the half-year period. Given developments in the third quarter, the approved budget for this year can be expected to be exceeded. Kala also states that excluding financial support to fight the epidemic, budget spending grew by 2.6 percent year on year, while just a year earlier, the increase was 11.7 percent. It also collected almost six billion crores more in corporate income taxes in 2019 compared to the last pre-FYE.