Czech Republic’s deficit rises to 5% after church compensation

3 Dec 12
The Czech Republic’s budget deficit for 2012 will be more than 50% higher than forecast as a result of plans to compensate churches for property confiscated under Communist rule.

By Nick Mann | 3 December 2012

The Czech Republic’s budget deficit for 2012 will be more than 50% higher than forecast as a result of plans to compensate churches for property confiscated under Communist rule.

The Czech finance ministry latest six monthly Fiscal outlook, published on Friday, said the compensation would add Kč59bn (£1.9bn) to the country’s deficit this year. This is equivalent to 1.5% of its forecast gross domestic product.

In October, the ministry forecast a deficit of 3.2% of GDP this year. It has now revised this to 5%, to take account of the recently approved church compensation and a European Union clawback of some subsidies.

The ministry stressed, however, that the compensation package, passed by Parliament in early November, was a one-off ‘methodological adjustment of the accrual accounting system’. It would not involve any cash actually being paid this year as the payments will be made over a 30-year period.

As well as the compensation, some Kč75bn (£2.4bn) of land and property seized will be returned to the churches, although this will not affect the deficit.

Under the same legislation, the amount the state contributes to the wages of the clergy will be cut gradually over a 17-year period. ‘The final objective is to ensure the full independence of churches from the state,’ the ministry noted.

Next year, the budget deficit is forecast to fall to 2.9% of GDP, the ministry said, below the 3% European Union maximum for member countries.

After this, the Czech Republic will adopt a ‘slightly relaxed’ consolidation strategy, with the deficit forecast to fall to 2.7% of GDP in 2014 and 2.4% in 2015. The ‘expected worsening macroeconomic situation’ will require increased spending and the use of ‘fiscal space’ to support the country’s economic recovery.

The ministry noted that this approach had been recommended by the International Monetary Fund and the Organisation for Economic Co-operation and Development and added that ‘we believe this is particularly legitimate for front-loaded consolidation strategies’.

It added: ‘In an international comparison... the Czech Republic is among the more responsible half of European Union countries in the deficit and debt area.’

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