Miroslav Kalousek: The gov’t’s failing on the job

The political battle over next year’s state budget is entering its penultimate phase. Now the government is set to negotiate a draft proposal put together by Andrej Babiš, supplemented by requests from the various other departments of state. But even back in spring, Babiš let it be known he was prepared to increase the country’s CZK 48bn budget deficit by a further CZK 11bn – which then happened. Have you been surprised by anything in the ongoing debates over next year’s budget?

Sadly, no. The government has already secured parliamentary approval for an increase in expenditure limits, meaning it has once again breached a principle previously adopted by ex-Social Democratic finance minister Pavel Mertlík [1999-2001]. Back then the agreement was that not only deficits but also expenditures needed to be set. There is a simple reason for that. At the point when an economy begins to perform better, the revenues from this prosperity should not go on increasing expenditures, but rather on reducing deficit balance. The only governments that stuck to such expenditure limits were those of Mirek Topolánek and Petr Nečas [both Civic Democrat-led –Ed.].

Miroslav KalousekAutor: Michael Tomes/E15

So the government is just piling up more debt?

Even if the nominal deficit is being somewhat reduced, the structural deficit is showing no signs of improvement. As a rule of thumb when Social Democrat-led redistributive governments have more money, they don’t use this to reduce the deficit, or to make structural changes, but rather they squander it. It is a terrible shame that the government is not making better use of this growth period. It was precisely such conduct in the run-up to 2008 that forced us to have to undertake some very painful savings measures. I agree that deficits have to be higher during times of economic crisis. But that only works if during times of growth governments undertake strong efforts to either pay down the deficit, or even to create surpluses. The Socialists who espouse Keynesian theories always only adopt one side of the equation: that there needs to be spending during tough times. The problem is that they also end up spending during the good times, too. And for so long until the money simply dries up.

But the Social Democrats make the counter-argument that the previous Nečas government was the main one responsible for overdoing austerity measures, which then ended up stifling economic growth. Even among the Civic Democrats you hear the view that the austerity measures undertaken by the former government were too severe. Are you prepared to admit that this was the case?

If we knew back then what we know now, then the stabilisation efforts need not have been undertaken with such speed. The tempo was CZK 60bn per year. Yes, I am willing to enter into a debate over whether CZK 40bn might have been sufficient. And we can talk about the speed of the consolidation of state budgets, but certainly not about the overall trend – meaning aiming towards a balanced budget. Andrej Babiš has totally abandoned such ideas. The government of which he is a part had no right to worsen the structural deficit.

We were having to tackle a state debt crisis, and were engaged in a desperate battle to regain the faith of financial markets. This began to yield fruit in 2011, when ratings agency Moody’s improved our rating by two points – the only EU state to enjoy such a privilege. This is in strong contrast to the fact that at the end of this July, ratings agency Fitch downgraded our credit rating by one point. That truly serves as a damning assessment of the budgetary policies of this government. At the point where a finance minister presides over a cut in the country’s credit rating, then that person should resign.

Not long ago, after a budget surplus of around CZK 76bn was announced, Babiš described himself as the most successful finance minister since the founding of the Czech Republic. Is such self-praise justified?

The surplus came about both due to higher revenues – which had nothing to do with the government, but rather was simply a fortunate happenstance – and secondly because none of the pre-budgeted investments were actually undertaken. If we examine published analyses, then we find that none of the successes are down to the active policies of this government. The reasons are found in economic growth and also the government’s inability to make investment choices. I believe the success of a finance minister is determined by ratings agencies. As far as I am aware, Babiš is the first minister who has presided over a ratings downgrade. Under past finance ministers Bohuslav Sobotka [2002-2006] and Eduard Janota [2009-2010] the ratings were stable, and under yours truly, our credit rating went up two points.

If you were finance minister now what kind of budget would you propose?

Either I would propose a deficit lower than CZK 60bn, or I would not feel I could continue in such a post. I was rather fascinated by the first round of budget talks this year. Babiš brought a deficit proposal before the rest of the government, he was overruled, and then left with an even higher deficit figure. That is indicative of the relationships that exist within this government; and also tells us about its capacity for planning and its negotiating skills. A finance minister who is outvoted in such a basic matter as the so-called big ticket matters of revenues, expenditures and deficits should surely have to resign. But that has never happened before, because each time finance ministers were able to reach an advance agreement with the PM. There is simply no other way to draft a budget. This golden rule applied just as much during the government of Petr Nečas, when relations between myself and the premier were far from rosy.

Miroslav KalousekAutor: Michael Tomes, E15

What is most burdening the public purse?

The 21,000 new public sector employees who have been hired during the past two years, as well as huge non-investment-related subsidies for various business entities. Even though the government says its priorities are science, education and transportation infrastructure, the greatest growth in spending is being evidenced in areas such as welfare payments, subsidies for large companies such as Agrofert, and wages.

I have nothing against the government raising wages for public sector employees during periods of strong growth. But what I don’t understand is why the public sector supposedly needed to swell up to such a degree. New pay expenditures for public sector officials will cost CZK 20bn each year. The structure of the budget is not geared towards a consideration of our country’s future, but rather on binging out in the present. Moreover, the government has abolished some of the reform measures undertaken by past right-of-centre governments, but has itself failed to undertake any kind of serious reform efforts so as to improve fiscal stability or increase our competitiveness.

This year has seen the entire management of the customs administration resign. A week ago, Babiš came out with a proposal for customs officers to have the same powers as police. But the idea has met with criticism both from the opposition and from within the coalition. What are the specific objections of TOP 09 in this regard?

The plan is absurd. Customs officials are administrators of excise duties. I, too, always sought a strong operational unit, not just with regards to overseeing excise duties, but the entire Financial Administration [Finanční správa]. But an operational unit serving in a tax administrator capacity cannot also exist as a police force, meaning an entity partaking in pursuing criminal prosecutions. I have always maintained that a tax administrator is there to collect taxes, and not to send people to jail. That is the job of the police. I am fundamentally opposed to the concept proposed by Babiš, and I even consider it to be dangerous. I assume that it is motivated by his ambition to have his own personal police force, and to use that as yet another tool against his political and commercial competitors.

How do you view the dispute between finance minister Babiš and interior minister Milan Chovanec over the planned police reforms?

I am not opposed to the creation of a financial crimes police unit, but neither do I believe that it is a particularly important innovation. I view as of secondary importance the organisational manner in which the battle against such organised crime is undertaken. If I hammer a sign on some house which reads “Financial police” then that hardly means that I now possess effective tools for combating this sophisticated form of criminality. The main issue is for the police to have top experts in the field at its disposal. But they have always lacked these, as the force has been unable to train sufficient numbers of officers to meet its needs.

Miroslav KalousekAutor: CTK

If both proposals are enacted one can imagine there would be an even greater shortage of financial crimes experts than at present – because the rival units would find themselves competing, both in recruitment and the training of experts, and also as to whose task it is to solve particular high-profile cases. Do you agree?

As finance minister I expended much effort on the issue of training at both the Financial Administration and the Customs Administration. But when we compared the capabilities of the Financial Administration and the police in particular, the Administration proved to be in a far healthier state. It would probably be better if both units cooperated with each other. If they end up competing then the end result will come to naught. Furthermore, the Financial Administration cannot treat all taxpayers as potential criminals. That would severely reduce the effectiveness of tax collection efforts. A certain degree of trust has to exist between the tax administrator and the taxpayer; the administrator should be able to help people to properly pay their taxes on time. Seeing potential criminals everywhere is an expression of Babišism. And I define this via two paranoid principles espoused by the finance minister: everyone can be bought, and everyone is a thief.

Conflict of interest legislation has been in the works for some time now. It is designed to limit Babiš’s ability to serve as a public official and businessman at the same time. But the Social Democrats have started to push for such legislation to also incorporate a central register of property assets owned by all politicians, including regional and local ones. Is this idea such a problem for TOP 09 that it might not support the package?

We have a genuine dislike of this government’s obsession with the creation all of kinds of central registers, which have no other purpose but to offer up the possibility that such information could be misused. We have nothing against politicians having to declare their property assets, and we actually submit such information. But why should Citizen A in one part of the country have access to the property records of Representative B in some far off village on the other side of the country? What possible good can that do?

All that will happen is that if someone turns to a decent, hardworking person to run for local political office, he will look at me like I am mad – because they won’t want to open up their property records and have them become the cause of slurs from opponents. If we simply end up trying to increasingly criminalise our municipal representatives, then this will harm the quality of democracy, because we will be creating a space for lower-quality politicians to fill the vacuum.

And so you intend to reject the proposed legislation? Would that not represent a lost opportunity in showing Babiš that the democratic, non-populist parties like the Social Democrats, Christian Democrats, Civic Democrats and TOP 09 have the guts to stand up to him?

We will continue to debate the proposals. I strongly hope that limiting Babiš’s ability to merge business and public service can be curtailed even before the autumn elections. If the talks are constructive, then such a thing is possible.