Theme 9 – Public Budgets Public Economics 1

The Public Sector Budgets of the Czech Republic The Budget System Two Fiscal Statistical Systems The Public Finance Reform 2

The Budget system - Legal Framework The budget process of the central government (the state budget and extra-budgetary state funds) is set by the Act on Budgetary Rules in addition to the special acts on extra- budgetary state funds. State Agricultural Intervention Fund, State Cultural Fund, State Fund of the Czech Cinematography, State Fund of Transport Infrastructure, State Environmental Fund, State Fund for Housing Development, Estate Fund of the Czech Republic 3

The Schedule of the Budget Process The schedule of the budget process starts in February and finishes at the end of the year and is obligatory according to the Act on Budgetary Rules. The state budget act and medium-term expenditure frameworks for years n, n+1,n+2 as well as the limits of expenditures and revenues for the chapters` (e.g.line ministries ) budgets are approved annually. The draft state budget, medium- term expenditure frameworks and limits of expenditures and revenues for the chapters` budgets are drawn up by the Ministry of Finance followed by the approval of the government and the House of Deputies. 4

Medium-term expenditure frameworks The medium-term expenditure frameworks for years n, n+1, n+2 were included into the Act on Budgetary Rules in connection with the decreasing of the general government deficit and fulfilment of the commitments towards the EU. The medium-term expenditure frameworks involve : state budget expenditures, extra-budgetary state funds. 5

The Budget Process The budget process has four main phases: Formulation of the draft state budget and medium- term expenditure frameworks for years n, n+1, n+2 by the Ministry of Finance Government`s approval Parliamentary scrutiny Implementation 6

Two Fiscal Statistical Systems There are two fiscal statistical systems monitoring the general government/ public budgets from the different points of view: The European System of National and Regional Accounts ESA 95 (accrual-based) National Methodology –Fiscal Targeting (cash-based) 7

Comparison I The Fiscal Targeting includes just so-called public budgets involving the central, regional and municipal governments as well as regional councils of cohesion regions. The ESA 95 covers the entire Government sector, in other words, public health insurance companies, government agencies, subsidiaries, funds, state universities and other set allowance organizations. 8

Comparison II In accrual system (ESA 95), recognition occurs with the exchange of liabilities and /or assets, which is usually before the cash flow and closer to actual economic impact of the transaction. In contrast, the cash basis (Fiscal Targeting ), which is used in most traditional budget systems, records outlays and receipts only when they involve cash transactions. 9

The Public Finance State – The General Government Deficit, Debt and Fiscal Stance 10

Ratio of state budget, extra-budgetary state funds, and public budget balances to GDP in % indicator GDP in current prices in billion CZK Ratio of state budget balance to GDP in % (budgetary deficit) -2,5-3-2,8-2,3 Ratio of extra-budgetary state funds balance to GDP in % -0,2-0,10 Ratio of other units of public budget balance to GDP in % -0,5-0,7 Ratio of public budget balance to GDP in %(without reform) -4-3,9-3,7-3 Objective according to the Government Programme Declaration -3-2,6-2,3 11