Prague will lose billions due to the coronavirus and will borrow for investment
“The biggest unknowns for this year are revenues from the budget determination of taxes, which is the main source of our revenues,” says Deputy Mayor for Finance Pavel Vyhnánek (Prague himself).
According to data known as of September, the city will lose about 6.1 billion this year, which is two billion less than expected in July.
“But now we are starting to face government action again, which will affect the economy. So I don’t know what will happen to the tax in the coming months, “adds Vyhnánek, adding that the final loss of the city may be even higher.
A few months ago, the management of Prague worked with the option that the city treasury would lose up to fifteen billion in total. This year, Prague will also record a significant loss in public transport, where the transport company will lose about a billion and a half.
“These are the lost profits of the transport company, which we will have to compensate,” says Vyhnánek. The budgets of the city’s contributory organizations, such as museums, theaters and the zoo and botanical garden, will lose a total of about 800 million. So far, the city has spent another 1.3 connected crowns on expenses directly with the covid.
The money went to city districts to fight coronavirus, to promote culture or tourism, sports organizations, to build test sites or to buy disinfectants and protective equipment.
Budgetary impact of covid
Source: MHMP |
The city management is currently also working on the form of management for 2021. However, the preparation of another budget is complicated by several unknowns in the form of further development of the pandemic, subsequent government actions against the spread of coronavirus or the effects of tax loss recovery.
The city expects tax revenues of 53.4 billion crowns next year, which is about four billion less.
“We are preparing a budget in an unprecedented situation, when I do not even know what will happen tomorrow, let alone in half a year. But we want to compile it so that we can approve it in December and so that there are no delays, which would be a problem for the city district, which compile their budgets based on the capital’s budget, “says Vyhnánek.
According to him, it would also be problematic if Prague started next year in a provisional budget. This does not allow new investments to be launched.
At present, it is expected that he will cut as much as possible the current expenses for next year, which include money for the operation of the city, road repairs and the like.
“We do not want to reduce investment expenditures and we also do not want to reduce financial resources for the city district in order to protect them from declines,” explains Vyhnánek’s cuts in current expenditures.
Super-gross threat
The current draft budget proposes to run a current expenditure of 41.7 billion, which is 1.4 billion less than in this year’s budget. The cuts will affect all responsibilities except public transport, which Vyhnánka for the functioning of the city is of fundamental importance.
The amount of the amount set aside for investments has not yet been announced by the city management, but it is certain that Prague will not have enough money for it from its current income. Next year, for example, the metropolis is waiting for the construction of metro line D. Therefore, part of the money for capital expenditures will come from the city’s reserves and surpluses from previous years, and there is also the possibility that Prague will borrow money for part of the investment.
The possible loan will be decided according to the investments that the individual councilors plan for next year. However, according to the municipality, large transport investments should not be endangered. “Investments in transport should not be affected by the cuts, but rather by the reduction of operating expenses or some services, but not directly to construction,” said Adam Scheinherr (Prague himself), Deputy Transport Minister for MF DNES.
According to Vyhnánek, another fact may affect the city’s economy next year, namely the abolition of the super-gross wage by the government. The planned budget does not yet include such a variant, but according to the deputy, it is a threat to the city.
If the state abolished the super-gross wage, it would mean another drop of up to 5.4 billion for Prague. “If the state does not threaten these measures in any way, it will mean further cuts in current expenditures, a reduction in services for Praguers and a reduction in investment,” Vyhnánek said.