The government will propose increasing the budget deficit to 500 billion, has prepared a law mitigating the impacts of lower tax revenue to villages

The state will help municipalities that lose part of their tax revenues this year as a result of the coronavirus epidemic. The draft of the emergency act was approved by Andrej Babiš’s government on Monday, 8 June 2020. The government will also put before the Chamber of Deputies a proposal for increasing the state budget deficit for this year to CZK 500 billion.

The economic downturn and other negative aspects of the coronavirus pandemic will negatively affect municipal and regional budgets, reducing territorial self-governing units’ revenues from shared taxes. The temporary reduction in municipalities’ tax revenues could place significant restrictions on their investment activities and could make it hard to fund operating expenditure, which would have selective impacts on local economies in the first phase and knock-on effects for the economy of the country as a whole.

The government therefore decided that it would put before parliament a solution to this problem in the form of a draft act on mitigation of the impact of reduced municipal tax revenues in 2020 in connection with the epidemic of the coronavirus known as SARS CoV-2. “We had a long discussion today about how to compensate municipalities for the revenue they have missed out on. That will amount to around CZK 6.6 billion, with a CZK 3.3 billion reduction in revenue for regions, according to our calculations. In the end the coalition, i.e. Mr Hamáček, deputy prime minister Schillerová and I, agreed yesterday evening that we would propose to the Chamber of Deputies a CZK 1,200 bonus per inhabitant for every municipality. This has now been approved by the government. That means that the total costs will be CZK 12.8 billion, with Prague accounting for CZK 1.6 billion of that,” said prime minister Andrej Babiš. The numbers of inhabitants will be taken from Czech Statistical Office data as at 1 January 2020. The government will ask the Chamber of Deputies to approve the bill in the first reading so that the financial assistance can be paid out to municipalities as quickly as possible.

Ministers also approved a further amendment of the Act on the State Budget of the Czech Republic for 2020. If the amendment is passed by the Chamber of Deputies, the state budget deficit could amount to as much as CZK 500 billion this year. The reason for the increase is the need to mitigate the impacts of the coronavirus epidemic, as well as the government’s endeavour to prevent an impending economic crisis by massive spending on investment. Besides supporting municipalities, the government will also support the regions, contributing to their repairs of 2^nd and 3^rd class roads, and will increase the amount of funds made available for investments by the State Transport Infrastructure Fund. The new budget also reckons with an almost CZK 44 billion reduction in tax revenues, with the social system likely to lose a further CZK 18 billion. You can find the details in the Ministry of Finance press release (in Czech language).

“We hope that the budget we approved today will be approved by the Chamber of Deputies on June 16. Once it is signed into law, we will push ahead with further subsidies for municipalities and regions. The Ministry of Labour and Social Affairs has CZK 400 million for that, Minster Toman has CZK 1.6 billion for water, CZK 7 billion for bark beetle measures etc. We are convinced that we cannot reduce investments, that we can’t let it happen that some municipality can’t afford to co-finance its projects,” the prime minister added.

The government released a further billion koruna to the Ministry of Agriculture for mitigating the negative impacts of climate change. This money will mainly be used to fund water-management projects, such as building and renovating water mains and sewer infrastructure, connecting water supply systems and projects to improve water retention in the landscape. You can find more information in the Ministry of Agriculture press release (in Czech language).

The government also decided to extend the Antivirus A programme until August 31. This programme compensates employers whose employees were required to quarantine themselves or who had to either downscale or halt their operations. The main reasons for the extension are the existing epidemiological situation and the enduring government emergency measures causing some sectors of employment to remain stagnant. You can find more details in the Ministry of Labour and Social Affairs press release (in Czech language).

Ministers also approved another liberation package, the third, which was presented by deputy prime minister and minister of finance Alena Schillerová. The approved measures include the waiving of fines for late tax return filing; the waiving of penalty interest and interest on deferred amounts of real estate acquisition tax until 30 November 2020; the waiving of value added tax on free deliveries of basic protective equipment and other goods until 30 July 2020; and the waiving of further penalties and administrative fees for late tax document filing. The Ministry of Finance will issue the measures in question in the coming days. You can find the details in the Ministry of Finance press release (in Czech language).

The cabinet also approved the Tourism Crisis Action Plan of the CR 2020-2021, which was presented by the Ministry for Regional Development. The action plan summarises the measures the government wants to take to support businesses in the tourism field. This is one of the segments hit hardest by the coronavirus pandemic and related preventive measures, including the closing of state borders. The action plan contains sixteen specific steps designed to help businesses in this sector get through the crisis, such as promoting increased demand for their services under the name Holiday in Czechia, revising the National Programme of Support for Tourism in the Regions, as well as the tried-and-tested national programmes Covid or Antivirus, the introduction of vouchers enabling travel agencies to defer their obligation to refund clients for money spent on cancelled package holidays. You can find more details on the Ministry for Regional Development website (in Czech language).

Ministers also approved a proposal for taking a cheap loan from the Council of Europe Development Bank. In this way the Czech Republic can obtain up to EUR 300 million, which is roughly CZK 8 billion. The money should be used to cover extraordinary costs incurred by the healthcare system in connection with combating the coronavirus epidemic. The loan can be applied to incurred costs retroactively as well, so in this way the government could recoup most of the CZK 11.9 billion it released from the government budgetary reserve to buy personal protective equipment and testing sets, for example, or additional apparatus for intensive care units. Additional information can be found in the Ministry of Finance press release (in Czech language).

Today the government also expressed its consent for the conclusion of an agreement on irrevocable, unconditional and on-demand guarantees within the meaning of article 11 of the Council regulation on the establishment of a European instrument for temporary support to mitigate unemployment risks in an emergency (SURE) following the Covid-19 outbreak. This temporary instrument set up by the European Commission will allow the Czech Republic to obtain up to EUR 374,538,500. The money can be used to pay for employment support programmes run by EU Member States in response to the coronavirus pandemic. In the Czech Republic it will therefore be possible to use this funding to cover expenditure under the Antivirus and Twenty-five programmes. More information on the Ministry of Finance website (in Czech language).

Ministers also approved the intention of the Ministry of Foreign Affairs to make efficiency improvements in economic diplomacy. They approved a set of measures designed to improve the efficiency of external economic relations and make better use of Czech embassies’ capacities when supporting Czech businesses abroad.  The “Reconstruction Package” makes use of existing tools for supporting Czech firms, so there will be minimal additional demands on the state budget. The emphasis is on increasing support abroad and making it more flexible. Additional information can be found in the Ministry of Foreign Affairs press release (in Czech language).

The government also approved funding for bilateral foreign development cooperation and humanitarian aid up to 2023. In the coming three years, more than CZK 3 billion will be set aside in the state budget to help developing countries. The Czech Republic’s financial assistance is intended to help partner countries revive economic growth and simultaneously open doors to these markets for Czech firms, businesses and other organisations.

Ministers also approved amendments of several banking regulations implementing new European regulations in Czech law. These are primarily an amendment of the Act on Banks and an amendment of the Act on Recovery and Resolution in the Financial Market. The aim of the amendments is to strengthen the banking sector, make supervision over the banking market more effective and modify the rules for any action to tackle banks’ problems. More information can be found in the Ministry of Finance press release (in Czech language).

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