State budget

What it means

The state budget is the state's annual plan of revenue and expenditure, approved by parliament as a law. It sets how much the state expects to collect in taxes, duties and other revenue and how much it will spend on education, healthcare, defence, pensions, investment and debt service.

The difference between revenue and spending is a deficit or a surplus. If the state runs deficits for a long time, public debt grows and European and national fiscal rules push it to consolidate, meaning cutting spending, raising revenue or a combination of both.

The budget is executed through the State Treasury, where revenue is pooled and from which payments are made. Besides national resources, it also reflects EU funds, which finance a significant share of public investment and business support programmes.

How it works in practice

For business owners the budget is an important signal of coming changes. How the government tackles the deficit often means changes to VAT rates, income tax rates or contributions, or new taxes that companies usually feel from the following year.

Examples include the introduction of a financial transaction tax or special levies on certain sectors as part of consolidation packages. Such measures are often passed in a fast-track procedure, so it is worth following the draft budget during the autumn.

When planning finances for the next year, it pays to prepare scenarios based on the announced changes. An accounting firm or tax adviser can help estimate the impact on prices, staff costs and cash flow so that the company can adjust price lists, contracts and its investment budget in time.

What to watch out for

The state budget is not the only source of change. Tax and contribution changes are also passed in separate laws, and their effective date may differ from the start of the budget year. Relying on media announcements is not enough; the wording of the adopted law is what counts.

The level of budget spending also affects the availability of public contracts and grants. In periods of austerity some calls may be delayed or cancelled, so companies dependent on state contracts or support should allow for the risk of delayed payments and projects.