The Czech Finance Ministry announced last week that the budget deficit stood at CZK89.6 (zł.14.4) billion at end-August, far exceeding the CZK38.3 (zł.6.1) billion full-year gap forecast in the 2009 budget.

The January-August result was the worst seen since 1993, the ministry said. In comparison, at end-August 2008, the budget showed a surplus of CZK5.3 billion (zł.853 million).

The budget for this year was approved on the basis of now unrealistic estimates of economic development. Due to the economic crisis, the ministry now expects a budget deficit of around CZK165 (zł.26.5) billion for the full year. In particular, a shortfall in tax revenues is the main reason for the rising deficit.

Some analysts say that if the current difference between planned and real development of tax revenues is not immediately addressed, the state coffers may be short of CZK190 (zł.30.6) billion by the end of the year. Total budget revenues at the end of August were down CZK47.5 (zł.7.6) billion compared to last year. “The year-on-year fall was mainly caused by [lower] revenues from taxes and fees and revenues from social security insurance,” the ministry said.

Revenues from taxes and fees decreased by over 10 percent, to around CZK305 (zł.49.1) billion, whereas the official budget had reckoned a growth of over nine percent. Corporate income tax revenues sank by nearly 35 percent to CZK48.6 (zł.7.8) billion, compared to an official budget forecast of 2.5 percent growth. The CZK38.3 (zł.6.2) billion budget deficit forecast for this year was based on expected economic growth of 4.8 percent. The ministry’s latest forecast, however, puts this year’s economic contraction at 4.3 percent.

This is an edited version of an article which originally appeared in Czech Business Weekly