expenditures^1 is very high and it is difficult to cut these expenditures as the majority are social
expenditures. Therefore the change of expenditure structure is inevitable step to reallocate more
resources for investment.
The reform was drawn up to stress mainly on the expenditure side. Unfortunately, this target was met
only partially, as can be seen from following chart.
Figure 1 – Structure of the reform measures3055(^264120)
70
45
(^745980)
0
20
40
60
80
100
120
plan outcome plan outcome plan?
2004 2005 2006
percentage
Expenditures
Revenues
The government declared following expenditure priorities:
- Research and development
- Education
- Transport infrastructure
- Programmes co-financed from the EU budget.
The reform consists of two phases; the first is concentrated on the consolidation of public finances and
the second on the measures enhancing economic growth. The preparation of public finance reform was
based on the principle that in the process of deficit reduction expenditure savings should prevail over tax
changes. Fiscal consolidation will particularly affect government consumption, social transfers and
subsidies. In accordance with government priorities, government investments will increase and some of
them will also be possible to fund from the Structural Funds and the Cohesion Fund.
1.1.1. Spending reforms
In the first stage of public finance reform a number of measures focused on rationalising public
expenditure came into force. Although the primary objective of these measures was to accomplish
budgetary savings, many of these measures improve economic incentives and strengthen the supply side
of the economy. The most significant spending reforms are in the area of sickness benefits, pensions,
state social support and assistance and central government employment. Improvement in the
composition of public spending is reached through the cuts in consumption and social transfers in order
to create an additional room for public investments.
1.1.2.General government revenues
General government revenues are monitored on the basis of the development of the tax quota, which
reflects both the impact of tax changes and the composition of GDP growth. Tax receipts in relation to
GDP should rise only slightly due to the sources of GDP growth, which is driven mainly by investments
(^1) Expenditures of the state budget in the Czech Republic amounts 908,416 mld. Kč and 67,5 % of them are legally
determined expenditures (incl. so-called quasi mandatory expenditures – wages and social insurance of state employees).
Social mandatory expenditures amounts 41,8 % of state budget, that is 379,418 mld. Kč.