J. Fischer: Rejection of the budget will be a signal that the government does not enjoy support

Mr Chairman, Deputies,

When I stood before you just under four months ago to ask for your vote of confidence in the newly appointed government, I presented to you the priorities of its programme. One of the was the preparation of a realistic and professionally prepared budget for 2010.

When I defended these priorities here, I believed, as you did, that I was taking up responsibility for the government for just five months, up to the date of the early elections. As is well known, the situation has changed dramatically. I come before you today because it is already clear that the early elections will not take place on the date planned. I come before you because it is this Chamber which must decide on the budget for next year.

I spoke about the composition of the budget when the vote of confidence in the government took place. At that time I said quite clearly that drawing up a sensible state budget "would be possible only at the cost of major cuts in public administration". You may recall that I also talked about the fact that the "way in which our country is managed economically will have to change, which will include changes in the area of so-called mandated expenditure". I think I was not alone at that time in thinking that with clear savings at individual ministries it would be possible to prepare a budget with the promised deficit of around 5% of GDP. And for that reason also I was able to promise you at the time that my cabinet "will not open up politically contentious or difficult subjects" and that it would be a government which would not initiate radical change.

Unfortunately I must now revise that commitment. As a consequence of the global economic crisis the slump in the Czech economy is in fact much worse than we originally expected. To put together a budget for next year with the promised deficit around 5% of GDP is now no longer possible without radical changes, that is, without your help!

That the budget position of our country is genuinely serious has been clear to the government since it took up its responsibilities. For this reason, soon after being appointed it approved so-called expenditure ceilings, more precisely, it introduced relatively drastic cuts into the budget for next year. It decided on across the board cuts in ministry expenditure to the value of 5-20%, including a moratorium on filling any unoccupied listed jobs. It did not inflation-index pensions or subsistence-level benefits. It decided to freeze salaries in the state sector. In total the government saved 38.5bn crowns in the budget for next year using decisions within its remit. This was not easy and many ministers had the feeling that the financing of their departments was at the very limit of operability. In view of the revised forecast for economic growth from June of this year, now not even these savings will be sufficient. In spite of these firm cuts the budget deficit for next year would climb to a dizzying 230 bn crowns, that is approximately 7.4% of GDP. And this in the opinion of the government is a figure which threatens the macroeconomic stability of our country and sound public finances.

Under these circumstances the government has opted for a more radical approach and made a proposal to the Chamber of Deputies for changes to certain laws, including an amendment to so-called mandated expenditure. The government is aware that in doing so it is stepping outside its previous "bureaucratic" mandate, and this was not an easy decision for it. However it has no other option if it wishes to meet its obligations. Failure to act would mean a step towards something which I would call the "Hungarian scenario". Failure to act means the risk of first of all having the international rating of the Czech Republic reduced, followed by a loss of interest in its bond issues, which could lead to a collapse in state finances. And this is something which neither I nor most of my ministers are prepared to accept.

Following long and complex discussions the government has therefore decided to submit to the Chamber of Deputies a package of changes to the law, the adoption of which will permit the drawing up of a budget with a deficit of approx. 155 bn. As a media abbreviation journalists are calling it the "Janota package", I would prefer to call the "package of last resort". It has but one purpose: to stabilise state finances in such a way that the Czech Republic, or more precisely the government which arises from next year's elections, will have at least some room for decisions on the direction that the state budget will take in the future. Otherwise decisions may be made for any future Czech government by the International Monetary Fund, from whom we would be requesting loans!

I will not go into detail here on the individual proposed measures, or on their specific impact on the state budget, since the Minister of Finance will be sure to do this as part of the parliamentary debate. But permit me to explain and list the basic approaches which the government has had in mind in drawing up the so-called package:

1) A systemic change to the state budget or to the budget rules is not our aim or ambition. Our proposal is not a reform of the tax system or a reform of social transfers. It is simply an emergency solution and for this reason all proposals being submitted by the government have a validity limited to one year only.

2) In preparing the proposal the government has tried fastidiously to avoid ideological structures or preferences for any particular economic doctrine. The proposal is intended to be "technocratic" in the extreme and in this sense I know that it will not satisfy politicians on either the left or the right. But it is a compromise which can be defended at expert level and the government stands unanimously behind it.

3) The government has tried to the maximum possible extent to have the ratio between new state income and expenditure savings in the budget be approximately one to one. It is not true that our proposals one-sidedly support income to the detriment of expenditure! As an illustration: the total planned budget savings are 38.5 bn in cuts in departmental spending plans, plus 25.4bn savings in social benefits and salaries, a total of almost 64 billion. Against this new income is calculated for next year at 50.3bn crowns. Although as a statistician I know full well that the same numbers can be often be interpreted in very different ways, I seriously ask you in your debate to accept the government's measures for saving the budget as a whole. Once more I emphasise: the package of changes in income and expenditure being discussed today is only a part of the government's measures to protect the state budget and should be assessed in this light.

4) The aim of the measures being proposed is to restrict the state budget deficit for next year to the limits defined in the government's Policy Statement, which spoke of 170 billion, or more precisely of a deficit of approximately 5 percent of GDP. With the zero economic growth expected from the domestic economy next year, this now in reality means a deficit somewhere around 155 - 160 billion. And through the calculations of the Ministry of Finance the proposed measures correspond to this.

5) The government has submitted its proposals to the Chamber of Deputies as so-called emergency legislation, and has two reasons for doing so. The first is the fact that debating the proposed changes to the law under standard procedures is no longer possible due to time constraints, the state is threatened with significant damage. The second reason is the government's effort to allow the Chamber of Deputies to conduct a standard, albeit shortened, parliamentary debate on the government's proposals. It is not that the government is submitting its proposals to you in a "take it or leave it" manner, but on the other hand it should be known that a decision must be taken in a matter of hours.

6) The government is submitting the proposed changes to individual laws as a single volume, since it is convinced that the sense of the "package" lies in being approved as a whole. The adoption of only one part, be that the increase in income, or only the part dealing with savings in expenditure, would not be right in the government's view. The government of course respects the independence of Parliament and its right to change the parameters of the measures being proposed by the government. However if the government is to bear political responsibility for next year's budget, it considers it essential for the deficit to remain within the parameters given in its Policy Statement. If changes made during the debate on the proposal made it impossible to draw up such a budget, I for one could not accept responsibility as Prime Minister for a budget with a deficit greater than 164 billion.

Finally, the proposed savings measures have been discussed by the government with its social partners in the tripartite grouping and as I am sure you have noted, the proposal has been supported by representatives of both the employers and the trade unions. This was not easy for them and the government values greatly their approach to this. For the government this is evidence that the proposed solutions, however painful they may be, are defensible from a practical and expert point of view and that they will be accepted as such by most of society. For these reasons also, I hope that they will have your support as well!

Deputies,

I could go on for a long time in explaining further details, context and reasons for the government, but in doing so I would deny my own argument for a quick decision. But please allow me one more important comment in conclusion.

In operating under the terms of emergency legislation it is not possible to link voting on a law which has been submitted to a vote of confidence in the government. This is the most important reason why I did not do so and have not asked for a vote of confidence. In these circumstances then, I can link the future of my government only indirectly to your vote. Nevertheless I wish to say quite clearly in conclusion that if you decide to reject the government's proposals, or to fundamentally rework them, either by increasing income, or by more radical savings only on the expenditure side, this will be a signal for me that that the government no longer enjoys your support.

Ladies and gentlemen, I trust that you will decide for the good of our country. I thank you for your attention.