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What used to be a bad sci-fi scenario is today's reality. What does an all-time record budget deficit mean for the Czech Republic?

NAKED TRUTH: Deficit of 500 billion. The gigangic debt will either kickstart Czech Republic, or bury it

David Budai
13.Jul 2020
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3 minutes
Kalkulačka jako váha

Last week, the Chamber of Deputies approved an increase in the state budget deficit by an incredible 500 billion crowns. We are balancing on the brink of economic tragedy, but if we are smart and use the borrowed money in a meaningful way, the risk-taking could pay off.

Karlův most v Praze
Pražské metro ve stanici
Peníze jako úspory a investice

So far, we had the worst budget balance in 2009 due to the global economic recession. Back then, the state deficit was 192 billion crowns. This year, due to the coronavirus crisis, we are aiming for more than a double - the deputies okayed a debt in the amount of 500 billion crowns. And that may not be the end; the Minister of Finance Alena Schillerová has already indicated that the number could be even higher at the end of the year.

500 billion crowns. Let's write it in numbers: 500,000,000,000 crowns. So what the hell does it mean? It's pretty simple: the Czech Republic doesn't have the money to pay for its own operation, and therefore will borrow it on the international market. In other words, sometime in the future we will have to pay this debt, otherwise the Czech Republic will go bankrupt, similar to what happened to Argentina years ago.

Vila na prodej - Klánovice - 465m
Vila na prodej - Klánovice - 465m, Praha 9

An easy way into a debt spiral

Having such a large debt is not easy, because it is necessary to pay interest. Currently, it amounts to almost 50 billion crowns a year, and with another record indebtedness it will grow even more. In other words, we use up tens of billions every year without building a single inch of a new road or covering the salary of a single firefighter or police officer. And it's like in life, if our debts get out of hand, we'll fall into a debt spiral and nobody will lend us anymore.

Luxusní činžovní dům na pronájem - Praha 1
Luxusní činžovní dům na pronájem - Praha 1, Praha 1

And that can easily happen to the Czech Republic. That is, if we act like fools and squander this record debt or spend it on useless nonsense. On the contrary, it is necessary to take this money and direct it to people and companies. In a smart, carefully planned out way, so that it would start returning in a few months and years through a growing economy, prosperous companies and thus higher tax collection.

Unfortunately, it doesn't look like anyone has actually thought it through at the moment, the opposition is right there. The government has yet to present a clear plan for where the money will go and what can be expected from it. What if they just blow all the money? The ministers, and especially the prime minister, need to stop pretending they have everyting under control and rather take a lesson from the fact that the coronavirus support for businesses they've provided so far has not been a demonstration of thoughtfulness and purposefulness. Many businesses received the support money too late, or not at all. Some Covid-19 programs are so complex and have so many exceptions that not even the smartert entrepreneurs fail to understand them. It's no use, and now's we have a chance to change that. Let's learn, start counting, planning and, most importantly, using our brains.

Smart investments can save us

If we invest the money well, this crisis will come out cheaper for us. The economy will recover and, as a result, we may soon be even better off than in previous years. Tax revenues and salaries will increase, companies will be able to afford investments, thanks to which our competitiveness will grow. And the Czech Republic will become an attractive place for foreign investors to take their money.

If we were only making budget cuts, dismissing officials (who would consequently stop spending money and end up in the labour office) and failed to support businesses, many companies would face the prospect of closing and laying off their employees. And the result? Hundreds of thousands of people would be out of work and weakened Czech companies would be bought by the Chinese, Russians or Germans, for example. In a few years, when the companies have recovered, the profits would start to flowing to the parent companies abroad. And the Czech Republic would, once again, be left in a miserable state. With massive debts on top.

Luxusní byt na pronájem Praha 1 - 27m
Luxusní byt na pronájem Praha 1 - 27m, Praha 1

And the same thing would happen if we just wasted the money from the record deficit and spent it on stupid little things like discounted train tickets or subsidizing equipment for making crispier toast bread that would last longer in our pantry. Yes, it would enable us to enjoy a wild party for a year or two, but the sobering reality afterwards would be really painful. And we wouldn't have any money left to buy a coke to help us through the hangover.

Hard number: 195,200,000,000

That's the state's budged deficit for the first six months of this year in crowns. Never in history has the Czech Republic been worse off since 1993, not even at the time of the culminating economic crisis in 2009 and 2010. This is terrible news, especially in light of the fact that the main wave of dismissing staff has not yet begun.

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