Babiš's Budget: A 389-Billion Deficit and Numbers Even the Markets Don't Believe

Andrej Babiš's government has submitted for parliamentary approval its first full budget with a deficit of 389 billion crowns, equivalent to 2.8% of GDP. However, an analysis of the document shows that the real figure, once additional expenditures are factored in, actually reaches 3.5% of GDP — and the budget plan for the coming years rests on assumptions that even supporters of the ruling coalition would struggle to believe.

Finance Minister Alena Schillerová compares the Czech deficit to those of neighbouring countries, arguing that Czechia looks better than Poland (-6.3% of GDP), Slovakia (-5.4%), and Germany and Austria (-4.1% each). But in doing so, she uses the understated Czech figure of 2.8% rather than the real 3.5%, and compares the state budget deficit with the deficit of the entire public finance system of other countries, which includes municipalities and insurance funds. Without the surplus generated by Czech municipalities, the real deficit approaches 4% of GDP.

An Unrealistic Medium-Term Plan

The medium-term budget forecast raises particular concerns. According to the document, budget spending in the election year of 2029 is supposed to be lower than the year before — even though the economy is assumed to keep growing. No such spending cut has been seen in Czechia since the first half of the 1990s, and it is expected to follow immediately after a year of record spending planned for 2026.

Even stranger is the forecast for interest payments on public debt. Before the pandemic, the country paid around 40 billion crowns a year in debt servicing; this year the figure will exceed 100 billion, and next year it is expected to reach 130 billion. Yet according to the government's own projections, this growth will then abruptly stop: interest payments for both 2028 and 2029 are pencilled in at an identical 160 billion crowns, despite the debt continuing to grow.

Defence and Taxes — on Paper Only

The government also claims it is meeting its commitment to spend 2% of GDP on defence, yet it has budgeted almost no increase in these expenditures for subsequent years — by the end of its term, defence spending is projected to reach just 2.15% of GDP. Experts put the odds of NATO allowing Czechia to remain the only member of the alliance without any increase in defence spending through 2029 at essentially zero.

As for taxes, the finance minister has cautiously hinted at possible increases in certain levies. Yet according to the same medium-term forecast, the overall tax burden is actually expected to fall rather than rise — from 32.9% this year to 32.6% by the end of the government's term. This is explained by ANO's pre-election promises to cut taxes.

Why the Markets Don't Trust Czechia

On paper, the Czech deficit doesn't differ much from figures seen in recent post-Covid years, and it remains lower than Poland's, where next year's deficit could exceed 7% of GDP. Yet Poland's public debt reveals a telling paradox: despite massive borrowing, markets treat Poland more favourably, because they see the money being invested purposefully, including in defence. Yields on ten-year Polish bonds hover around 6%.

Czechia, meanwhile, has spent the past two years steadily paying more and more for its debt — yields have topped 5% for the first time since the pandemic, even though the country's official deficit is lower than Poland's. The reason lies in investor confidence: markets are willing to forgive a larger debt if they see the money being spent wisely. Analysts say they simply don't believe the Czech budget plan — and the question now is whether the lawmakers who must approve it will believe it either.

Around Prague, based on reporting by seznamzpravy.cz