Press Conferences

1. 6. 2009 13:09

Press Conference after the Meeting of the Government, Held on Monday 1st June 2009

Roman Prorok, spokesman of the Government of the Czech Republic: Good afternoon ladies and gentleman, I apologize for a rather late beginning of today’s press conference after the cabinet meting. I welcome the Prime Minister Jan Fischer, the Minister of Justice Daniela Kovářová and the Minister of Finance Eduard Janota, who will inform you about today’s Government agenda and how it did turn out. Concerning the apology for the late beginning I will add that it was also due to a telephone conversation of the chairman of the European Council and Prime Minister Jan Fischer with his Italian partner Prime Minister Berlusconi. The Prime Minister will inform you briefly about this conversation. Thank you.

Jan Fischer, Prime Minister of the Czech Republic: Thank you very much, good afternoon, once more the apology directly from me. The conversation with Silvio Berlusconi was peaceful, factual, and also concerned some statements from the end of the last week. Ahead of us is a lot of work relating to the preparation of the European Council meeting; therefore, we exchanged our opinions on individual issues of the agenda. Silvio Berlusconi fully accepted that the Czech Republic is prepared to cope with the agenda. We talked a little about some controversial issues, for example about the standpoint of countries towards the climate package, which will be the subject of the Council discussion. We talked about problems of illegal migration, which upsets Italy and other countries, etc. It was a very factual conversation. Let us proceed to today’s meeting of the Government. The key issue was the discussion of the last week’s adjourned issue, i.e. the state budget for 2010 and the budget outlook for the following two years. We have again adjourned the issue today; as indicated by in the record of the government meeting, we have agreed - and this I consider as very important, because the discussion was very difficult, the Minister of Finance will inform you about the details – that, in accordance with the policy statement, the Government will indeed work with the deficit of 170 billion CZK, which represents a 5% deficit of the GDP calculated by the ESA 95 method. Next week, we will further elaborate the path towards this very difficult objective. With regard to the high share of mandatory expenditures, we have indeed reached the limits of possible tightening of expenditures in individual government departments. Nevertheless, we are determined to cope with this strict task, which is pinpointed in the policy statement. The rest of the documents concerned mostly MPs bills, the details of which will be explained to you by the Minister of Justice. At the same time we approved the structure of the National Security Council and the Committee for Intelligence Services. That is all from my part, I would wait for your questions and I would like to ask the Minister of Finance for a brief commentary about the budget and the Minister of Justice for a commentary on the Government’s position on the MPs drafts and other bills, which we discussed at the Government meeting.

Eduard Janota, Minister of Finance: Thank you, ladies and gentlemen; since the last Government meeting, the budget has been discussed either by me with the ministers, or by my colleague the Deputy Minister with his counterparts at the ministries. I focused these discussions on the target which we set for ourselves here - to pull the emergency brakes within the budget and not to permit any fatal deterioration of public budget deficits above 5% of the GDP. The discussions were complicated. In a number of cases, we reached consensus; in other cases, slight differences remained. Nevertheless, a particular fundamental problem has emerged with respect to the financing of the State Transport Infrastructure Fund (SFDI). I would like to point out and to stress that science, research, education, infrastructure fall within the priorities of the budget, although someone is trying to challenge this fact. Some doubts were expressed yesterday by Václav Moravec it, but since we did not cut the expenditures in these segments, it means that we give them a priority. To prove that, I would like to inform you that while SFDI's income amounted in 2006 to 47.5 billion CZK – at that time, the Operational Programme Transport (OPT) and EIB’s loans had not existed yet - it reached some 60 billion in 2007 and 81.3 billion in 2008, including EIB’s loans and OPT. The same sum has been allocated for this year and we will allocate 84 billion from the budget for the next year. Here you can see that there are no cuts of SFDI's funds. On the other hand, it is true that this fund is encountering a major problem with too many unfinished projects. To satisfy all requirements of the optimum variant of the fund, the Minister asked for an additional 50 billion CZK, which, as you would understand, is absolutely unacceptable. In a somewhat medium variant, it was something between 20-25 billion CZK. This sum has also become the topic of a two-hour discussion at today’s Government meeting. How can we resolve this problem? We cannot resolve it by mere increase of the budget deficit, due to which our deficit would come close to 7% of the GDP. I believe that this is unacceptable and I would never present the Government such draft budget. Thus, the debate ended by a conclusion that we will assess once more these demands or the SFDI's analysis with regard to its obligations and the unfinished projects. Then, the limits for individual chapters will be definitely closed.

If the demands of the Minister of Transport prove to be partially legitimate, then there will no other choice for the Government than to recommend a certain analysis and re-assessment of the extent of mandatory expenditures. Without this step, it is impossible to finance increased expenditure of the SFDI, i.e. the expenditure which would exceed 84 billion. We agreed on this issue and we would like to make room for clarification of the fund's position. This is the reason for the adjournment of today’s meeting. However, although today’s meeting was adjourned, it reflects the clause in the policy statement that deals with the compliance of with expenditure frameworks and any further increase of expenditures solely on the account of the deficit is presently out of the question. That is all concerning this basic problem. As regards transport, we discussed one more governmental issue - an increase of expenditures for the so-called transport service availability for regions, or the loss incurred by Czech Railways due to transport service availability in 2008. This loss will be resolved by a transfer of funds: 3.2 billion CZK of state budget subsidies allocated to the SFDI will be taken away and transferred to regions to cover the costs of transport availability for 2008 and SDFI's funds will be increased by 2 billion CZK from privatization resources. This was an operation related to the anti-crisis package, an operation that had already been agreed by the Mirek Topolánek's government. That is all regarding the document relating to the SFDI and the solution of the situation of Czech Railways concerning the transport service availability and the increase of 2008 mobility expenditures in 2009. What we definitely want to do is to get to know in advance the future ties and financial relations between the Czech Railways and the regions. We are talking now about the losses from passenger transport, i.e. that the share by the Czech Railways and the regions in this loss has to be defined in advance. It is the only possible solution which will avoid any ad hoc makeshift solutions. That is in respect of today’s discussion about the state budget. I am glad that the discussion ended as it did, because any kind of diversion from the efforts to pull the emergency brakes and not to permit any deterioration of the public finance deficit towards 7% is unacceptable for me and I believe that it is also unacceptable for a number of members of the Government.

Roman Prorok, spokesman of the Government of the Czech Republic: I thank the Minister.

Jan Fischer, Prime Minister of the Czech Republic: I add in this respect that the Minister has my full support. However, before we formulate expressly the need to address the mandatory expenditures in this country – this issue will definitely emerge some time in future, the extent of these expenditures is totally untenable in this country and all of us are aware of it but we do not have the mandate to bring along legislative changes of this kind - I have urged members of the Government to analyze, before we enter into this debate, the rationality of procedures applied in their departments and the number of their workers and employees, the usefulness and scope of subordinate organizations existing in these departments. It will be wise returning to some projects that have been abandoned, such as the central purchasing for public service. I see no reason for individual purchase of cars according to their own plans, and this does not concern only automobiles and material, this is how it works elsewhere. We have to return to these things. We have to return to two year old analyses concerning the property held by each government department, not only their income and expenses but also what assets they possess, how they use them, how expensive is the operation of such assets etc. I am glad, that we agreed upon the 5% deficit. I would not be simply prepared to send to the Parliament a document which would be directed at some 7% unless there is essential change in the parameters of the July development projections, which I cannot imagine under the current circumstances. The decline in this country's rating, the risks arising from possible loan requests- this is indeed the increase of a macroeconomic disequilibrium for which the Government is responsible.

Eduard Janota, Minister of Finance: I would add some more comments. Of course, we are prepared to make a step B if it appears that it is necessary to increase SFDI's resources above the limit of the presented data. At such moment, we are ready to prepare legislative proposals for a particular correction of mandatory expenditures, provided that we are granted such authority by political subjects. Secondly, it would be proper because we cannot propose a budget draft which would increase SFDI's on account of mandatory expenditures that have been formally cancelled. At the same time, I am not prepared to decrease formally expenditures of mandatory nature, unless they have a legislative coverage. I am ready to prepare solutions which would legislatively decrease the parameters and due to which the budget will be considered as credible. What will happen to it is another story. This Government will present the budget to the Chamber of Deputies on 30 September and it will be left there, the elections will take place and it will depend on the course of events in the post-election period whether the government which will emerge from the elections will or will not adopt the budget, whether it will modify it and if so, to what extent. But this is beyond the horizon and mandate of this Government. I want to propose a reasonable, responsible budget, which will not exceed 5% as regards public finance. In other words, I am aware that there is no longer any room in the executive, standard expenditures that fall within the competency of the Government. We have used up this room completely and whatever increase of investments has to be matched by savings. Of course, it is a problem for us that it is very difficult at present to analyze the macroeconomic situation. However, one of the items of the government resolution stipulates that if there appear in July significant differences in economic estimates, we will have to respond to such situation, whether positively or negatively. Finally, I would like to say in respect of my opinion on this document that we want to propose an economical but credible budget; that is why we openly characterize the possibilities which face us. One thing is whether we succeed to compile a budget for the following year, whether we accept the current amount of capital expenditures, i.e. the amount with which the Minister of Transport disagrees. Another problem is that in the absence of fundamental change in the structural budget expenditures, every budget for the following years will be more and more complicated and will not definitely approximate us to the limits required for the entry into the currency exchange system and for the adoption of the EURO. Thank you.

Roman Prorok, spokesman of the Government of the Czech Republic: Thank you, now I will ask the Minister Daniela Kovářová to present to you some information.

Daniela Kovářová, Minister of Justice: Thank you. Good afternoon. The first legislative step which was on the Government agenda was the Government resolution increasing the maximum limit for minor repairs in apartments from 300 to 500 CZK and setting the maximum sum of limits for minor repairs per one square meter at 70 CZK. The Government expressed its consent with this proposal. The second issue was the proposal of the MP Bohuslav Sobotka for an enactment shortening the minimum time limit within with the MP committees have to discuss the relevant budget chapters. The Government expressed its consent with this draft and recommended the maximum decrease of the present 30 days' time limit to a 15 days' time limit. The third issue was Miroslav Váňa's proposal for an enactment amending the Act on Ownership of Flats and other laws by extending the time limit within which members of housing cooperatives may apply for transfer of title to their flats. The Government expressed its consent with this proposal and the period in which tenants may exercise their right of pre-emption will be extended to 2040, which corresponds to the maturity of the last installments of loans taken by housing cooperatives. The last legislative issue on the agenda was an MPs proposal for an enactment transferring the title to the buildings, movables and immovable assets used currently by the municipal hospital in Ostrava to the statutory city of Ostrava. The Government disagreed with this proposal not only because it considers it as ill-conceived and wrong from the system prospective, but also because it supposes that these matters should be resolved by a legislative act and also because this proposal had become outdated and redundant in the meantime because the Minister of Finance had signed the transfer of title to these assets. That is all concerning the legislative issues of the Government and maybe the Minister of Finance would like to express himself concerning the last issue.

Eduard Janota, Minister of Finance: Perhaps just a brief comment. This problem was somewhat related to the discussion about the regulatory charges. This transfer had been suspended by Minister Kalousek. I took note of the recommendations of my colleagues from the Office for Representation of the State in Property-related Affairs and took into account the situation concerning regulatory charges that exists now after the discussion of this issue in the Chamber of Deputies. I considered as more reasonable to carry out a standard operation which falls within the competencies of the Ministry of Finance and I signed this transfer. On the other hand, it was also promised, and therefore I can confirm what has been said by Madame Minister.

Roman Prorok, spokesman of the Government of the Czech Republic: Thank you. Yours questions please. Nova TV, Reuters.

Reuters: Good afternoon, a question to Mr Janota. According to this year’s budget figures that have been published, the deficit for the period of January to May is 71.4 billion. I would like to know whether you still believe that it is realistic to achieve in such circumstances a 150 billion deficit at the end of the year? How will we accomplish it?

Eduard Janota, Minister of Finance: I will respond to it. I have also received this information a moment ago. It implies that a problem rests on the revenue side; while the income for the same period of last year reached 39.8%, it is 4% less this year. Less income is being generated. It is even 3% lower than the last year's index and I would like to say that the problem is related to the generation of all essential items, such as VAT, personal and income tax. On the other hand, we can say that the development of expenditures is standard and corresponds to the standard character of some expenditure. I do not simply see any fatal problem on the expenditure sire. Of course except for accelerated use of resources for passive unemployment and for relatively massive use of funds allocated to the care allowance provided under the Social Services Act and to destitution allowances. 11 billion CZK have been used up. A specific problem can be seen in the transfer to health care for persons insured by the stare. If the relevant amendment is not approved, this problem will further escalate in the next year, which will be due precisely to the failure to agree in the Chamber of Deputies on an amendment which would resolve payments made by the state for persons insured by the state. We have to amend accordingly the relevant Act which was valid in 2007 and this means a 10 billion increase in the funds transferred from the state budget into the health insurance system. Thus, if the resources were not spent as an increased payment of the state, they could be used to finance repair infrastructure. This estimate does not divert from the framework of 130-150 billion estimated for this year. I cannot confirm or refute this. It rather confirms the estimate the budget will end with some 15 billion [deficit].

Roman Prorok, spokesman of the Government of the Czech Republic: Thank you. Nova TV.

Nova TV: I would have a question for the Minister of Finance. How much are your colleagues in the Government obeying you? You said that they will have to make cuts and will have to put up with it. Is it difficult to persuade them or do they oppose? Another question is related to the Mr Pecina's proposal to freeze pensions and to cut benefits; did you discuss this?

Eduard Janota, Minister of Finance: As regards the first question, this is not my first position in the government legislation and executive. That is why I know that the minister of finance usually fights against all ministers and the outcome depends on the extent of support provided to him by the prime minister in all those complicated budget discussions. I have an advantage in this respect, because I feel complete support of the prime minister in these negotiations. Of course, none of the ministers is satisfied; however, after complicated negotiations and explanation of all existing options, the situation has reached the phase where we negotiate objectively and correctly and I believe that this tendency will continue. I can say this much in respect of this issue. As to the second question, this information has been brought out by someone from the Government discussions. Today's debate about this topic was wholly legitimate, i.e. Mr Pecina is not alone and I have to say that the essential difference between the conduct of the members of this Government and the conduct of members of previous governments whose budget discussions I attended lies in the fact that the vast majority of the current ministers see that they cannot close their eyes vis-à-vis the situation in the area of mandatory expenditures. I did not see anyone at this meeting who would argue otherwise than by pointing out that it is impossible to cut endlessly current expenditures and to ignore the growth of mandatory expenditures. This problem was actually concealed at the time when the growth [of the economy] reached 5-6% but has become prominent now, with the 2.5% decline of the economy and the lower GDP, and it has become impossible to finance it both in absolute and relative numbers. I would even say that it is beyond the possibilities of this economy at the time of crisis.

Roman Prorok, Spokesman of the Government of the Czech Republic: Thank you. Czech TV.

Czech TV: I have one more question regarding this year's budget. You have said that the deficit should be sustainable up to 150 billion, are there some other cuts that are required? Have you got a general idea about expenditures which the ministries will have to cut if it is required to maintain this budget?

Eduard Janota, Minister of Finance: We have made these cuts. Since the beginning of this year, we have reduced the expenditures of all government departments in a total amount of almost 7 billion crowns and added these amounts the funds which are to assist in overcoming massive unemployment. Secondly, to mitigate the income deficit, we have used 32 billions from reserve funds, which had been amassed in individual chapters until 2007; thirdly, we assess very prudently the claims of various ministries, resulting from their savings of 2008 expenditures. A new legislation which came into effect as of 1 January has simplified the system of savings and their reflection in the budget for the next years. In this sense, we are very restrained and each expenditure requested by the governmental departments is being carefully assessed and I have to say that although I have on my desk a pile of files and applications for release of these funds, I have not released anything yet and Minister Kalousek released about one third of these funds. In this respect, we also promote this year's budget savings.

Jan Fischer, Prime Minister of the Czech Republic: I fully support this approach to the consummation of these funds. The Minister of Finance is very strict in this respect; I feel that such approach is popular among my colleagues and he has my support in this respect. Otherwise, if we are tolerant and release these funds, we will face problems as early as in this year and the debate about this year's 150 billions would be totally different from the present debate. The Minister of Finance has talked about that. This is a good question; it would not be so if we were soft-hearted and open-handed this year.

Roman Prorok, spokesman of the Government of the Czech Republic: Thank you. Your question please.

Radiožurnál: My question is addressed to the Prime Minister. Why did you postpone today the plan for military missions for 2010?

Jan Fischer, Prime Minister of the Czech Republic: This requires further negotiations between members of the Government and politicians. That is why we will leave it to the next week. There is no danger of delay. We wish to have this material prepared well enough so as not to give a signal that we have failed to agree, etc. This would have unfortunate international consequences, which we wish to avoid. This material is prepared but we need some more negotiations.

Eduard Janota, Minister of Finance: I have discussed this with the Minister of Defence and the budget allocated to the Minister of Defence fully covers these missions. From the financial perspective, it is not difficult to find funding for these missions.

Czech TV: Good afternoon, I would like to ask whether you have discussed funding the D47 [highway] by government bonds? What was the fate of Michael Kocáb's report on human rights in the Czech Republic?

Jan Fischer, Prime Minister of the Czech Republic: I will answer the second question and the other one will be answered by the Minister of Finance. In brief – the report was approved as presented by Minister Kocáb.

Eduard Janota, Minister of Finance: You have been evidently informed that we will use the open bond programme for funding of D47. In this respect, we presume that we will issue bonds this year in the amount of 8.4 billion crowns. The draft law has been approved and the Government rejected today the resolution issued by Mirek Topolánek's government and replaced the EIB loan by the possibility to issue such bonds. Next year, we plan to use 11.4 billion crowns from this bond programme. These figures were already included in the data which I presented at the beginning. 184 billions will be allocated to this fund next year, including these 11 billions for D47 from a special programme. This solution has been selected as the simplest and fastest one, which will not cause any problems and will allow obtaining immediate funds for the financing of this project.

Roman Prorok, spokesman of the Government of the Czech Republic: Prima TV.

Prima TV: I have a question about MP Váňa's proposal. The Minister [of Justice] has said that the proposal has been actually approved with regard to the expiry of the loans provided to cooperatives. Could you please provide some more details so that it could be better understood? What has happened to these loans that they have won such affection from the part of the Government?

Daniela Kovářová, Minister of Justice: I would answer this question. The problem lies in the fact that the selected date corresponds to the maturity date of the loans, which have been provided by the state to housing cooperatives for up to 40 years. Due to this, we have approved this proposal so that we would enable tenants and members of housing cooperatives to buy flats where they live and to use their right of pre-emption. That is why we have given a green light to this proposal.

Roman Prorok, spokesman of the Government of the Czech Republic: Thank you. Your question please.

Mladá fronta Dnes: I have a question to Minister Janota. Have you discussed with your colleagues the issue of “dead souls”? Have you handed them the required numbers by which they should reduce such vacant positions? My second question concerns the necessary decrease of mandatory expenditures. Could you provide some details about the expenditures to which this would apply? Thank you.

Eduard Janota, Minister of Finance: As regards the dead souls, we have agreed today on a minor adjustment – the base for the determination of these numbers was reduced by employees who provide technical assistance in connection with projects funded by European funds and with the Czech Presidency. It concerns a minimum amount not exceeding 200 million crowns, which will be covered by the Ministry of Finance from the amounts allocated to the general treasury administration. This was only a correction, which will help mostly the chapters of the Ministry of Education, Youth and Sports, the Ministry of Justice and the Ministry of Industry. These three chapters will keep their ca 600 employees and the money in the chapters and they are resolving this problem. As regards mandatory expenditures, the smartest solution would be the approval of the current amounts paid by the state into the health insurance scheme for its insureds. This payment currently amounts to 670 crowns per one insured. If this law is not approved by the end of the year, this payment will be increased to 790 crowns per one insured, which represents the above-mentioned ten billion crowns. Another matter is represented by all non-valorised expenditures, which are determined by the law in absolute figures, i.e. all expenditures except pensions, which are valorised. This would require amendments to all relevant laws, which would reduce the absolute amounts of all these mandatory allowances. As regards pensions, we are obliged by the law to valorise them subject to some pre-determined conditions. We will valorise them by 2.8%, which is the minimum valorisation percentage prescribed by the law, which will increase the average pension by 280-300 crowns. Such are the possibilities. There is, of course, another possibility which is rather speculative – wage expenses in the public administration sphere, i.e. whether the wage freeze has been final or it is possible to go any farther in this area. This is only a speculation which we consider as a theoretical possibility. We have not agreed on any further steps. This will depend on the conclusions of the negotiations with the Minister of Transport concerning the actual volume of funds required for infrastructure and on the assessment of the whole situation. This seems to be all about these issues. Although I would not wish to escalate the problem, I would mention that the construction savings issue is still open, even though any effects of the relevant amendments to the law would not appear in 2010 but later. However, these are just speculations which would have to be considered and discussed in detail by the Government. I presume that such measures will also require a political backing. In any case, we are not so far now and we will wait until we finally assess the situation taking into account financial means available in the State Transport Infrastructure Fund. The essential factor is the limit and the deficit share, which is 5%. This indicator is stable and does not change. Thus, the crucial indicator is the 5% share in the deficit. This is the figure used in the assessment of individual Eurozone economies to see whether we are or are not prepared to leave the exchange rate system and to adopt Euro. This indicator is used in the assessment of excessive budget deficits. We will re-enter this system, because our estimated current year deficit will exceed 4.5% and we will thus use the procedure applying to excessive deficits and will have to prepare a medium-term plan of overcoming such deficit. In this sense, we are not the only country; most EU countries and Eurozone members will have to apply this procedure and there are currently some consultations under way to determine the form and the time when we will join this system.

Roman Prorok, spokesman of the Government of the Czech Republic: Thank you. The penultimate question please.

Hospodářské noviny: Do the figures mentioned by you last week, i.e. 165 billion in 2010, 162 billion in 2011 and 156 billion in 2012 still apply? When you talk today about 170 billion, have you got these 5 billions as a manoeuvring space to satisfy the Minister of Transport? Is this the reserve kept by you there?

Eduard Janota, Minister of Finance: This reserve can logically be there. I would say that if we had a deficit of 170 billion, we would comply with the frameworks of expenditures. This government would keep the expenditure frameworks approved in discussions concerning the budget and the medium-term outlook approved by the previous government for 2010. In this sense, there is such reserve, because we are talking about a deficit of up to 170 billions.

Jan Fischer, Prime Minister of the Czech Republic: This is written word by word in the relevant paragraph in the Policy Statement.

Roman Prorok, spokesman of the Government of the Czech Republic: One last question.

Reuters: Only a complementary question to the bonds to be issued for completion of the construction of that highway, which were mentioned by the Minister of Finance. I wish to know whether these 8.4 billions are a part of the global need to borrow 280 billion crowns.

Are they a part of this global framework?

Eduard Janota, Minister of Finance: It can be said so.

Reuters: And the 11.4 billions will be a part of that framework for the next year?

Eduard Janota, Minister of Finance: Exactly.

Roman Prorok, spokesman of the Government of the Czech Republic: Thank you, thanks to the Prime Minister and the Ministers. I am looking forward to meeting you again next week. Good bye.

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