Vladimír Urbánek (Kurzy.cz)
Markets  |  February 06, 2013 15:49:55

By the way ... notes to the financial constitution

Deputies began to discuss the government's draft constitutional law on fiscal responsibility. Its essence is two parts: the limits on public debt in relation to GDP, which is associated corrective mechanism to prevent the country's debt is too high, and the formation of the National Council budget, fiscal institutions to evaluate the situation.

Debt limits are set at 40, 45, 48 and 50 percent of GDP. Definition of sanctions associated with their misuse of this law is described here . The key is to define the debt to which they apply. It is a public debt (debt of central government, extrabudgetary funds, counties, municipalities and health insurers) reduced the margin financing government debt.Logically, this construction makes sense, however reduces the transparency of the debt criterion, and therefore understandable to the general public. In addition, the inclusion of reserve funding would reduce the risk that the Treasury will hold this reserve unnecessarily high. At the end of last year, this reserve amounted to 135.7 billion crowns. It is of course advisable to maintain reasonably high margin with respect to market risk. But this provision is not free. The average cost of national debt is around 3 percent and maintaining such high reserves therefore worth 4 billion a year.

Public debt in relation to GDP at the end of last year, according to my estimate was 45.6 percent of GDP. After deducting financing reserve should be at 42.1 percent of GDP. This year, the debt criterion brakes probably will increase to 44.6 percent of GDP.If there is a tightening of fiscal policy, the limit will be exceeded 45 percent in 2014. However it is to learn from CSO notification, which will be published in April 2015. Another limit at 48 percent of GDP would be exceeded in 2017. The Last Frontier, 50 percent of GDP a year later. Approval of the constitutional law on fiscal responsibility therefore implicitly maneuvering future fiscal policy towards greater rigor (or if you prefer liability).

The last remark concerns the budget of the National Council. This should be elected Chamber of Deputies. The appointment shall specify the act on the rules of budgetary discipline. According to his original variants should council members proposing the government, the Senate, the CNB Bank Board, the Minister of Finance with the mayors and governors.The key will be the budget of the National Council was occupied by apolitical and professional point of view. The original proposal assumes that the board member should have at least a master's college education and should be experienced and distinguished man with ten years experience in finance and macroeconomics. But fiscal policy is in the center of politics as such, will therefore be impartial apolitical action of the National Council budget nejednoduché and susceptible to criticism from one or the other side of the political spectrum ..

David Marek, Patria Finance

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