By Jan Lopatka
PRAGUE, July 2 (Reuters) - The new Czech cabinet will aim to
cut the budget deficit below 3 percent of gross domestic product
in 2012 and put state accounts on track to break even in 2016,
incoming Finance Minister Miroslav Kalousek said on Friday.
In an interview with Reuters, Kalousek said spending cuts in
the former communist state were necessary and would not hurt
economic growth, arguing against the idea that countries should
not overdo fiscal restraint to keep the recovery on track.
Kalousek, 49, will return to the ministry, which he ran in
2007-2009, within two weeks if coalition talks of his
conservative TOP09 party with two other centre-right parties are
concluded as expected.
The three parties won a surprising 118 seats in the 200-seat
lower house in a May election, defeating the front-running
Social Democrats and winning a strong mandate for their pledge
to bring the budget gap down from last year's 5.9 percent.
"The main aim of this government is liquidation of the
structural deficit," Kalousek said in his first interview with
international media since being nominated on Wednesday.
"Regardless of how big the economic growth or decline is,
public budgets are suffering from the tumour of the structural
deficit, which is about 90 billion crowns."
"We want 3 percent in 2012 and balanced budgets in 2016,"
based on an assumption that growth will be at least 1 percent,
he said.
The Czech economy is expected to grow 1.5 percent this year
and 2.4 percent in 2011, according to finance ministry
estimates. The incoming government has pledged to cut the
deficit to 4.6 percent next year, a slightly bigger reduction
than the 4.8 percent prescribed by the outgoing caretaker
administration, after a 5.3 percent target this year.
In later years, social and welfare reforms will start
bringing benefits to the budget, Kalousek said.
He said savings -- the coalition has already agreed on 54
billion crowns in cuts and 20 billion in extra revenue next year
-- would not hurt growth.
He said that under planned pension reform, ceilings on how
much people pay on social insurance could be cut, which would
help the economy.
"The idea that we will cure the crisis that evolved from
irresponsible debt of governments and households by more and
more debt is like pouring oil into the fire," he said. "I never
believed that and I never will."
SHORTER BONDS
To bring more savings, Kalousek said he would look at the
government's financing strategy and put more emphasis on shorter
bond maturities than the current programme due to high yields on
long maturities.
"The current strategy, very appropriate in good times, to
push mainly long-term bonds.... will require a reassessment,"
Kalousek said.
"At this point, interest rates on short paper and long paper
clearly advises for length of maturity not to be the main
priority," he said, adding there would need to be a good balance
of various maturities.
Yields on Czech 3-year bonds were 2.20 percent on Friday,
while 15-year paper were at 4.398 percent, 153 basis points
above the corresponding Bund, according to Reuters data.
Kalousek said he would coordinate issuance of foreign debt
with the central bank, and added a mix of domestic and foreign
issues could be expected, with the possibility to raise debt in
dollars as well as crowns and euros.
Kalousek added he would be against more market regulation in
the EU and new fees and taxes.
"I am a serious opponent of the policy of some European
countries that could be characterised in one line: 'Regulate it
while it moves, and begin subsidising when it stops moving'."
"I have an entirely opposite approach to the economy. The
Czech government will be extremely reserved toward all gung-ho
regulatory actions that can often destroy a number of product on
the financial markets and cause serious economic damage."
(Reporting by Jan Lopatka; editing by Patrick Graham)
