Transitional Success USSR to EU — страница 6

budget is helpful. Defining the role of the state in the new market oriented economy is critical. Two main issues must be examined, the resources and informational capabilities of the state. Both are limited and both are not independently effective. The budget and the political issues surrounding its passage are important in understanding the Czech approach to stability now that much of the transition has been rather successfully completed. Intergovernmental Financial Relations Before the budget analysis, a brief overview of intergovernmental financial relations may be helpful. The Department of Finance makes budgetary estimates for the Ministry of Economy. They regulate spending and essentially decide which organizations and institutions receive the much sought after government

subsidies. They are also responsible for government accounting, financial management and regulation of wages. The Department of Finance is classified under the Ministry’s “Administration and Finance” section. The Foreign Economic Relations Department, the European Affairs Department and the Economic and Social Policy Department are all included under the Ministry’s “Economic Policy.” They all report to the Ministry and are essentially charged with the difficult task of improving and encouraging economic development both home and abroad. The Ministry also supports a wide variety of business development departments; Small Business, Business Promotions, Tourism, etc. Though their interactions, cooperation and communication are limited, they all follow somewhat

coordinated general policy initiatives of the Ministry. The 1993 Budget The following budget summary is based on the 1993 budget because that was the first budget elaborated as the independent Czech Republic. Before the transition, Czech had one of the more state dominated economies in the CEE. The state controlled almost all economic activity with government expenditures reaching as high as 65 percent of GDP in 1989. The 1993 budget focused on a more developed private sector. The budget is fundamentally influenced by tax reform which will be discussed in the following chapter. Revenues The 1993 budget is based on three main revenues: the value added and excise taxes (36.9 percent), income tax from legal entities (25 percent) and social insurance (28.5 percent). The new tax

system (and total restructuring of public finance to benefit local budgets) reshaped the revenue system and forced budget developers to complete more in-depth estimates of revenue flows. They were forced to make more accurate revenue predictions. Total revenues in 1993 reached 419 billion crowns (26 Kc per $1USD), of which 343 billion went to the state, 41 billion to local districts and 35 billion to health insurance. Revenue growth was 13.4 percent and local budgets rose 35.2 percent in 1993 Expenditures A large part of the expenditures for the Republic encompassed transfers to the people. The largest programs are pensions, family allowances and sickness insurance. Social transfers were increased in 1993 to create reserves for expected increases in unemployment. Expenditures on

branches of government like health care, for example, increased by 50 percent in 1993, simply responding to demand. A move to create the National Health Fund was instituted out of a revamped payroll tax and transfers from the central budget to care for the non-working public. The health fund reduced local spending on health care thereby reducing local transfers. Expenditures on education and culture also increased by a third over 1992 levels. These additional expenditures were partially offset by a new wage tax targeting employers and a combination of the following: 1) Savings in compensatory income support and sickness benefits by a new means tested model; 2) A freeze on subsidies to agriculture, transportation and mining; and 3) Large cutbacks in real investment, including a

public housing plan begun in 1992. Transfers from federal accounts to the Czech government totaled 90 billion crowns, one fifth connected with expiring credits granted abroad and debts owed by the former Czechoslovakian and CSFR government. Debt service is a major component of the 1993 budget. The debt reached 115 billion crowns by 1993. 40 billion crowns were transferred liabilities of the Czechoslovakian Commercial Bank from operations of the so-called ‘central foreign currency resources’. Total expenditures on debt service reached 23 billion crowns in 1993. Due to its size and proportion of the entire budget, some of those payments were deferred. Eight billion crowns, the total Czech share of the 1992 debt, was financed through state bonds and money from the national