Czech Budget Deficit to Exceed 386 Billion Crowns: Expert Calls for Higher Taxes on the Wealthy

In 2026, the Czech Republic will run its state budget with a deficit of 386 billion crowns, and judging by statements from government members, the authorities have no plans to reduce this figure in the coming years. Without reforming the revenue side of the budget while simultaneously cutting expenditure, it will be impossible to keep the deficit under control going forward, said Luboš Komárek, a member of the Czech National Budget Council, in an interview.

According to him, without these steps, the previously declared goal — a structural deficit of 1% of GDP, which the country had planned to reach starting in 2028 — will also prove unattainable.

Reserves Lie Only in Mandatory Spending

In Komárek's assessment, the potential to bring the budget under control in the future lies almost entirely in mandatory and quasi-mandatory spending — the expenditures the state is legally required to cover every year. According to the National Budget Council, these accounted for 95–96% of the entire budget in 2022–2025. Mandatory spending includes pensions, social benefits and interest on public debt, while quasi-mandatory spending mainly covers civil servants' salaries. Without changing these items, there is virtually no room left for real cuts.

"Perhaps we simply don't allow ourselves to think that mandatory spending can be changed too. But that requires a certain amount of political courage and clearer priorities. The minimum step is not to add money beyond what the law provides for — as is currently being discussed, for example, with pensions. Subsidies for supported energy sources also shouldn't be a burden on the state budget," says Komárek.

Another option is to accept that people could, even if only to a minimal extent, contribute to the cost of ordinary medical care themselves — for example, by returning to the debate on so-called above-standard services. Unlike other European countries, the Czech Republic's healthcare spending as a share of GDP has still not returned to pre-crisis levels in recent years.

In Komárek's view, the state shouldn't be a "caretaker": its job is to build roads and other public infrastructure and to guarantee clear, stable rules that are actually enforced. "The state shouldn't be a kind of taxi that drives me through life — that's my own responsibility. We've grown a bit too used to demanding more from the state and to it constantly leading us by the hand, and that's not a good thing," says Komárek. Such a "state taxi" should be reserved for those who genuinely need it — for example, the sick and people with disabilities. Someone who has been unemployed for a long time, he says, should start retraining as soon as possible rather than passively collecting benefits.

The Wealthy Should Pay More

As for the revenue side of the budget, Komárek believes certain taxes should be raised. "Successful people should understand that they owe part of their success to the education the state gave them, and of course to their own effort and hard work. Progressive taxation is a common practice, and on the whole it's the right approach. The only issue is finding the optimal degree of progressivity — one that doesn't discourage successful people from working and pursuing entrepreneurial ideas," he says.

Specifically, the expert proposes something akin to the abolished "super-gross wage" — that is, higher taxation of high-income individuals rather than companies. Overall, however, he primarily favors indirect taxes, such as VAT or excise duties.

Komárek doesn't rule out raising the property tax either, which he says is extremely low in the Czech Republic. At the same time, he warns against excessive expectations: "We shouldn't forget that this money has already been taxed once. And would this measure solve the problem of rising housing prices or affordability? I'm afraid not. That would require a truly significant tax increase, and public finance theory generally advises that tax changes should be gradual rather than a shock," he says.

Komárek acknowledges that this is one of the most politically sensitive topics. The Czech Republic has an entire culture built around cottages and country houses, and willingness to pay more for them is minimal. In his view, fair taxation should distinguish between those who use property for themselves and those who use it to run a business.

The Snowball Effect and the Debt Brake

All the reforms — on both the revenue and expenditure sides — are technically feasible, but there is neither the political will nor demand from voters for them. International markets are currently calm and don't see the Czech Republic's growing debt as a serious problem. History shows, however, that a sobering reality check can arrive quite quickly.

According to Komárek's estimate, the deficit should grow from 2.1% of GDP last year to 3.5–3.6% of GDP in 2027 — an increase of roughly 1.5 percentage points. A comparable jump, excluding the COVID and crisis years, has been seen only in Romania.

"What worries me somewhat in public spending is the so-called snowball effect, because the literature and the experience of many countries confirm the phenomenon of deficit bias — the tendency of governments to keep expanding deficits. Even well-functioning governments, because of the political cycle, tend to run higher deficits than is appropriate for the long-term sustainability of public finances. During periods of economic growth, by contrast, governments should be running surpluses and paying down debt rather than increasing it. And when politicians court voters too much to secure re-election, it becomes a problem," says Komárek.

Budget consolidation is typically not carried out in an election year, and the only upcoming year without elections is next year, 2027 — which, according to the forecast, is precisely when the deficit is expected to peak.

The last safeguard remaining is the debt brake: once debt reaches 50% of GDP, its first stage kicks in, and deputies and senators would have to cut their own salaries by 20% unless they changed the law. Further thresholds follow at 55% and the Maastricht 60%. According to Komárek's estimate, Czech debt could exceed the 50% of GDP mark as early as the end of the current electoral term, possibly in 2029.

A government with a parliamentary majority can amend the fiscal responsibility law without much difficulty. "In this electoral term, we will unfortunately come noticeably close to the debt brake threshold unless we change the direction of public finance policy — for example, in line with the approved fiscal-structural plan. Since 2020, Czech debt has been growing at the third-fastest pace among EU countries — only Finland and Romania are faster. We are needlessly using up fiscal space that should serve as a reserve for worse times. Interest on the debt is also rising, and it always has to be paid first — otherwise investors would lose confidence in the country; it's a kind of super-mandatory expense," he says.

Komárek points out how the debt is reflected in everyday life: with a deficit of 386 billion crowns, the Czech Republic is borrowing more than a billion crowns a day. The yield on ten-year government bonds, according to the latest data, is holding at around 5% — roughly the same as a mortgage rate. Debt servicing costs are expected to total around 110 billion crowns this year, and more than 130 billion crowns next year.

Source: seznamzpravy.cz

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