Czech Government to Sidestep Budget Deficit Cap for the Sake of Defence Spending

On Monday, Deputy Prime Minister and Finance Minister Alena Schillerová will present the government with a draft state budget for next year, including the size of the deficit. The document is due to be made public later the same day. According to Schillerová, the deficit will come in below 400 billion crowns, which she says is in line with the fiscal-structural plan approved by the European Commission. President Petr Pavel has previously said he hopes the deficit will end up considerably lower than that figure.

The minister did not give an exact number, but confirmed that the government intends to invoke the so-called European escape clause — an EU mechanism that allows defence spending to exceed the usual limits.

Opposition braces for the worst

Opposition politicians expect the deficit to land closer to 400 billion crowns. KDU-ČSL faction leader Marian Jurečka suggested the figure could reach around 360–370 billion crowns. Deputy Speaker of the Chamber of Deputies Jan Skopeček (ODS) offered a similar estimate, noting that Schillerová herself once criticised former minister Zbyněk Stanjura for a 270-billion-crown deficit, yet is now preparing one of roughly 350 billion.

Skopeček argues it would be unacceptable to exceed this year's ceiling of 310 billion crowns, since the economy is expected to grow faster next year, which should also mean higher state revenues. "We've entered a much more favourable economic period, yet they're turning it into a budgetary Armageddon," he said, criticising the rising national debt.

Schillerová herself noted that the final deficit figure could still change as early as September — the government, she said, will likely adjust it once the Energy Regulatory Office recalculates surcharges for renewable energy sources, which since this year have been paid out of the state budget.

The president's stance and priorities

President Pavel has said he has no intention of vetoing the budget, viewing it as a tool of the government — he did not block the budget law in the past either. He would only consider a veto if defence spending, which he calls the top priority, were significantly underfunded. At the same time, he described healthcare reform as another urgent task: "The system isn't exactly short of money, but efficiency is low."

According to Schillerová, next year's budget will start with a structural deficit of 2.9% of GDP — a figure that is independent of the economic cycle and persists even when the economy is doing well.

New taxes and benefit cuts

The minister announced another package of excise taxes, including a levy on nicotine pouches, which currently go untaxed. The government is also preparing measures against the shadow economy, including the possibility of charging social security contributions on undeclared "under-the-table" work — something the law does not currently allow.

In addition, the Ministry of Labour and Social Affairs plans to once again cut unemployment benefits during the first months of unemployment — from 80% down to 65% of previous earnings. Jurečka sharply criticised the move, saying it would hit people over fifty who have worked honestly for most of their lives and then lost their jobs.

Minister of Sport, Prevention and Healthcare Boris Šťastný (Motorists party) said his party would back the government in order to push through "deep structural reforms." The opposition, however, is sceptical about reforms this late in the electoral cycle. "Even a right-wing, fiscally responsible government would never make radical cuts right before an election," Skopeček said.

Jurečka insists there is no way to improve the state of the budget without changes to the tax system, and calls the abolition of the so-called "super-gross wage" a mistake — a measure that was scrapped with votes from ANO, ODS and SPD. President Pavel also acknowledges the negative fallout from that decision, saying the budget remains extremely strained partly because the resulting revenue shortfall was never offset. Former President Miloš Zeman had voiced a similar view in the past.

Around Prague, based on reporting by seznamzpravy.cz