Prague, [Date] – The Czech Republic’s state budget deficit stood at CZK 214.1 billion ($9.7 billion) at the end of July, showing a slight improvement from June’s deficit of CZK 215.4 billion, according to data from the Ministry of Finance released on Tuesday. Despite the positive trend, this still marks the second-worst result for the country’s state budget since the establishment of an independent Czech Republic. By comparison, the deficit at the end of July 2020 was CZK 192.7 billion.

The consecutive decline in the deficit over the past two months is encouraging, with the budget even achieving a slight surplus of CZK 1.2 billion in July alone, representing an improvement of CZK 11 billion year on year. Finance Minister Zbyněk Stanjura expressed optimism that this positive trend would continue, and he hopes the budget will reach the planned deficit of CZK 295 billion for the year, provided savings of around CZK 20 billion can be agreed upon with other ministries.

The YoY deterioration of over CZK 21 billion was primarily influenced by increased spending in the social sphere (+CZK 75.1 billion) and assistance to citizens and businesses affected by high energy prices (+CZK 51.1 billion). Higher state debt service expenses were also attributed to increased interest income from anti-inflation state bonds (+CZK 11.9 billion) and higher investments (+CZK 12.7 billion), as reported by the Ministry of Finance.

On the revenue side, budget revenues reached CZK 1.068 trillion by the end of July, representing a year-on-year increase of 17.2%. The increase in corporate income tax collections notably contributed to the revenue growth, with the state collecting CZK 122.2 billion from this tax, 37% more than the previous year. Additionally, the state garnered additional income from the levy on excessive profit in electricity production, with CZK 13.4 billion collected so far.

However, not all areas experienced revenue growth, as excise duties brought in CZK 82.1 billion, reflecting a decrease of 6% compared to the previous year. This was attributed to changes in consumer preferences for tobacco products and reduced excise duty on diesel, which, however, returned to its original level in August. The Ministry of Finance expects this decrease in tax revenue to be offset by the end of the year.

Social benefits constituted a significant portion of budget expenditures, with the state disbursing CZK 503.5 billion. Of this amount, CZK 395.9 billion was allocated to pensions, an 18.9% YoY increase.

Looking ahead, the government’s positive outlook for the state budget deficit indicates a continued decline in the coming months. Finance Minister Zbyněk Stanjura plans to propose further budget cuts of CZK 15 to 20 billion by the end of the summer, aiming to meet the targeted deficit for the year. With prudent financial management and continued economic recovery, the Czech Republic seeks to strengthen its fiscal position in the face of ongoing challenges.

Article by Prague Forum