Billionaire Babis May Be Biggest Winner From Czech Austerity
(Bloomberg) -- The Czech Republic’s center-right government is doubling down on austerity measures in its next budget, in a move that may hasten the return of the populist billionaire Andrej Babis to power next year.
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The Finance Ministry in Prague on Sunday proposed a fourth year of budget deficit reduction to 230 billion koruna ($10.2 billion), extending one of the most ambitious fiscal-consolidation projects in the European Union.
While spending curbs and tax increases have reassured foreign investors and credit-rating agencies, they’re testing the patience of even a frugal-minded Czech public and causing tension within Prime Minister Petr Fiala’s five-party coalition. The opposition ANO party of Babis, who ran record deficits while in power between 2017 and 2021, is leading all opinion polls after placing first in European Parliament elections in June.
“Fiala’s administration is in a very vulnerable position and could easily be voted out of power in 2025,” said Vratislav Havlik, a political scientist at Masaryk University in Brno.
Populist parties are gaining momentum in a Europe that’s seeing a lackluster economic recovery, coupled with concern about immigration and some fatigue in financing Ukraine’s resistance to Russia’s invasion. In Germany over the weekend, populist parties on the extreme right and left dominated two state elections, just as such groups made the biggest gains in France’s snap ballot in July.
In the Czech Republic, where far-right and pro-Russian parties are also making gains, the draft budget is already causing consternation within the ruling coalition. Regional Development Minister Ivan Bartos, the leader of the smallest government party, told the CTK news service the proposal was “unacceptable” because it would slash funding for a housing-construction program.
The Fiala administration is walking a tightrope as it’s trying to make good on its promise of fiscal restraint while boosting funds for defense, roads and education. Finance Minister Zbynek Stanjura called the plan a “reasonable compromise” that fostered investment and economic growth. He said money could still move between different envelopes as long as the overall shortfall remained the same.
Yet he’s facing criticism from labor unions for curbing public-sector wage growth and some benefits as well as from leading economists, including central bank Governor Ales Michl, who’ve criticized the deficit cuts for being too slow.
“We Czechs have collectively decided that a deficit above 200 billion koruna is simply too high, regardless of what’s considered normal in other countries,” said Masaryk University’s Havlik. “But voters are exhausted by the recent inflation crisis and expect their individual situation to improve.”
--With assistance from Peter Laca.
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