Illustration photo – Member of the National Budget Council Mojmír Hampl.
Prague – The current high inflation is more reflected in the expenses than in the income of the state budget. Chairman of the National Budget Council Mojmír Hampl told ČTK. It welcomes the government's announced move to reduce the structural deficit of the budget by 70 billion crowns. According to him, this is only the first step towards the consolidation of public finances, because the problem is deeper.
“The huge problem of our public finances is that we have much more indexation for expenses than we would have for incomes,” Hampl told CTK on the sidelines of the Broker Consulting company's conference on the effects of inflation on real estate investments. According to him, the collection of value added tax increases with inflation, inflation is also indirectly reflected in the collection of personal income tax due to the increase in wages. “But we have much more automatically valorized expenses than income. If someone thinks that high inflation is an automatic bonanza for public budgets, I say it is not,” he emphasized.
According to him, inflation also complicates budgeting. “Every finance minister would prefer and budget more easily if there was price stability. Because there would be some reasonable predictability, not sudden shocks to which there is no equally sudden possibility of reaction,” said Hampl.
He pointed out that high deficits of public finances also contribute to the growth of consumer prices. “On the other hand, the one who is legally responsible for achieving low inflation is the central bank,” said Hampl, who previously held the position of deputy governor of the Czech National Bank (ČNB). He himself would welcome a further tightening of monetary policy, and therefore an increase in the base interest rate, which has been at seven percent since last June.
Former CNB Governor Miroslav Singer said at the conference that he also supported further growth in the base interest rates. Currently, due to the unexpected strengthening of the koruna, he believes that seven percent represents a sufficiently strict monetary policy. “If it needs to be tightened, it will show more halfway through the year than now,” he said.
Hampl welcomed the government's determination to reduce the structural deficit of the budget next year by 70 billion crowns. “In the given situation, it is something that can be welcomed. It is better than doing nothing. It just means that further steps will have to follow in other years,” he said. He does not yet know the specific form of austerity measures, according to him it is a matter of political negotiations between the parties of the government coalition.
Last year the state budget ended with a deficit of 360.4 billion crowns, the third worst result in the history of the Czech Republic. This year, the government plans to manage a deficit of 295 billion crowns. In February, the budget ended with a deficit of 119.7 billion crowns, the deepest in the history of the Czech Republic. However, Hampl pointed out that the result was influenced, for example, by the one-time payment of anti-inflation bond revenues or the fact that the state did not yet have income from extraordinary measures to compensate for energy prices, but had already had to pay these compensations. “The number is not pretty, but we don't think it's a number that tells a significant message about the whole year. We'll see that in two, three months,” he said.