Inflation will deprive the city of several hundred crowns, says Pavel Vyhnánek
What stage is currently in preparing the 2022 budget?
We are waiting for a new government and it is certain that the state will manage in a provisional budget at least at the beginning of the year, because it will not have time to approve the budget. However, we are still counting on a plan for Prague, when we want to approve the budget at the December council, so that even city districts can approve budgets. This, of course, carries with it some uncertainty. We enter the budget on the assumption that the state will not substantially limit the funds it sends to the functioning of wages or state administration. Assembling it is difficult in today’s turbulent times. However, we are in the phase of closing the discussion on current expenditures in Prague and getting to the investments for next year. We are going according to schedule and I believe that we will really follow the plan.
What data do you use when planning your city’s budget when the state has not yet approved its budget?
In general, we are based on the numbers and expectations of the Ministry of Finance. Next year, we anticipate an increase in Prague’s revenues due to the resumption of economic activities in the Czech Republic. Conservatively roughly in the amount of five billion crowns.
Does this mean that the state will provide Prague with more money?
No, the increase will not be due to the state sending us more money, but due to the growth of the economy. We primarily expect an increase in revenue in the area of VAT, in the area of corporate income taxes. On the contrary, just like this year, next year we will reap the benefits of the non-conceptual decision of the Chamber of Deputies this year, which decided to abolish the super-gross wage. This way, both this year and next year, we are losing a billion crowns. However, we expect this proposal to offset the increase in corporate taxes and VAT.
So how much does Prague plan to manage next year?
It should be emphasized that these are working, unapproved numbers. But to illustrate the approved budget for the area of own revenues, it was 56 billion crowns this year. There, we expected a decline compared to the approved budget for 2020 by about four billion crowns. In the proposal for next year, we are working with revenues of 61.5 billion crowns. But it’s a job number, it can still change.
What impact will rising energy and fuel prices have on the budgets of municipal companies, such as the transport company?
If I only knew. No one knows how the situation will develop. It is dramatic, it affects the citizens and it also falls on the village and Prague. It is not easy, especially given the uncertainty. We do not know if we are already at the maximum commodity prices or if they will continue to grow. The budget is a long-distance run, we have been preparing it since the summer. Therefore, we are not able to automatically reflect the changes that have taken place, for example, in recent weeks. But we are compiling it conservatively, so we will be able to respond to these unexpected situations during the year. We will be ready to change it hand in hand with the needs of city societies.
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Rising which products will affect the budget the most?
In general, the greatest price pressures can be grouped into three groups. The first people are building materials, the second energy and the third is the price of labor. Significant budgetary pressures can be expected in three areas. We do not know in what volume it will be, because there are a number of unknowns. In the case of a transport company, we expect that the increase in energy will be in the order of lower hundreds of millions of crowns. An increase can also be expected in the Technologies of the Capital City of Prague (THMP), where we expect to pay an additional roughly 100 million crowns. The same in the Prague services, where, on the contrary, we expect pressure on wages. I dare say that in total it can be assumed that in the case of energy and wages it will be higher in the hundreds of millions of crowns.
And how will the rise in prices of building materials hit Prague?
When it comes to building materials and orders, it’s even harder there. Orders, depending on their type, become more expensive by ten, twenty, thirty and in some cases more percent. For example, the THMP told me that in cases where a substantial part of the order is made of steel, they observe an increase of up to 40 percent. This will undoubtedly have a budget impact as well. But we will do our best not to restrict the city’s investment activity.
Do you count on the help of the state in financing these investments?
I believe that Prague will maintain and increase its basic investment activities. But what will be at least important is that the state will help Prague with the construction of metro D and the inner ring road. This is absolutely essential for the management of Prague in the coming years. Because it is a nationwide investment that is shared between the city and the state everywhere in developed countries. Because if Prague were to invest from its own resources only in the case of metro D, it would have a devastating impact on the city’s economy in the next ten years.
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If Prague itself financed metro D, what would be the impact on the city?
It depends on what phases of the metro we are talking about. Now we are starting the first phase, during which I believe that Prague is in the area to start it and to the maximum. If we’re talking about the whole line, I probably wouldn’t say I wouldn’t have any other investments. But it would have to reduce its investment activity in other areas. Then the people of Prague would know that in their daily lives. Prague faces many challenges, in addition to infrastructure, huge zones belong to the capacity in education, demographic or climate change. It will all require huge resources.
Can you even earn Prague for rising energy prices? Municipal companies include Pražská plynárenská and Pražská energetika, which are likely to be transferred by some of Bohemia Energy’s clients.
I checked it out personally. This is not expected to have an impact on the profitability of companies. They sell these commodities to people de facto for operating costs. So they will have more turnover, but again they will have higher costs for buying energy. Although there are tens of thousands of extra clients, the companies are in a difficult situation. It is difficult to buy energy on the market now, especially the extra ones. The Energy Regulatory Office also controls this very precisely so that the situation on the market is not abused.
But if a large proportion of people move to urban society, can it generate more profit?
This will show up when the situation calms down. But classic market conditions will already apply there. Some clients will stay and others may take advantage of better offers from someone else.