Czechia braces for record budget deficit of nearly 400 billion crowns without raising taxes

By 2027, the Czech government plans to increase spending across almost every area — pensions, public-sector wages, defence, transport, healthcare, education and energy. At the same time, the authorities have no intention of raising taxes, opting instead to let the budget deficit grow.

This year's deficit is set to reach 310 billion crowns, but next year it is certain to climb further. Prime Minister Andrej Babiš speaks of a deficit "well below 400 billion crowns," though economists are sceptical. Aleš Bělohradský, an analyst at the Centre for Public Finance, forecasts around 370 billion, economist Vít Hradil puts the figure at 345 billion, while sources familiar with the matter suggest the deficit could come very close to the 400-billion-crown mark.

In its policy statement, the government pledged to keep the deficit of the entire public sector below 3% of GDP. But even that target could prove difficult unless economic growth picks up sufficiently. According to Hradil of the investment firm Investika, both this year's and last year's deficits are "economically completely unjustified." Worse than the figure itself, he says, is that the authorities clearly intend to keep going down this path: "If society as a whole gets used to this as the new normal, state bankruptcy is only a matter of time," the economist warns.

Who's asking for more money

Individual ministries' requests have risen again compared to last year. Preliminary calculations suggest pensions will need roughly 18 billion crowns more, public-sector wages around 20 billion more, while the Ministry of Defence wants its budget increased by about 35 billion crowns.

The list doesn't end there: the state also wants to invest more in transport, add funding for healthcare and education, and meet its defence commitments all at the same time. Everything becomes a priority at once. But if spending rises while taxes don't, something has to give — either savings or new debt. "The ministries' excess demands run into the hundreds of billions," Bělohradský notes, stressing that this is no justification for letting the deficit grow further.

The demographic bill is still to come

Pensions traditionally make up the most expensive line item in the budget. Due to expected indexation, they will require roughly 18 billion crowns more next year. Czechia's population is ageing, the number of pension recipients will keep growing, and without systemic reform this trend will continue.

Teachers' salaries are also a hot topic: Education Minister Robert Plaga wants to raise them to 130% of the national average wage. According to calculations by the Institute for Democracy and Economic Analysis (IDEA), returning to that level by 2027 would require roughly 35 billion crowns extra, pushing the ministry's budget up to 300 billion crowns.

Finding the money in the budget won't be easy: compared to the pre-crisis period, the state is now collecting about 100 billion crowns less, while spending demands have grown by 200 billion. Altogether, that leaves a gap of around 300 billion crowns that public finances will somehow have to close.

Defence, debt and looser rules

The Ministry of Defence wants another 35 billion crowns or so — its budget should grow from 155 to 190 billion crowns so Czechia can meet its NATO commitment to spend at least 2% of GDP on defence. There is ongoing debate, however, about what actually counts as defence spending, since new budget rules give certain strategic investments more room outside the usual limits.

Around 10 billion crowns will likely go toward funding public-service media. As in previous years, in 2027 the state again plans to cover part of the cost of supported energy sources — this year that came to roughly 7 billion crowns.

The government has also significantly loosened budget rules: new regulations, which survived a presidential veto after being re-approved by the Chamber of Deputies, shift deficit limits from stricter national standards to more lenient European ones. There are also new exceptions that allow for even more spending — for example, excluding certain infrastructure costs from calculations, or freeing up an additional roughly 240 billion crowns if the State Security Council determines there has been a "vaguely defined" deterioration in the security situation. According to Hradil, under the old rules, both the 2027 budget and this year's budget would have been illegal — the National Budget Council has already declared the current budget unlawful.

Interest on debt is eating up more and more

One line item the government simply cannot cut is interest payments on public debt. This year, debt-servicing costs are approaching 110 billion crowns, and next year they could rise even further.

According to Tomáš Dvořák, an economist at Oxford Economics, this is comparable to the entire budgets of the Ministry of Defence or the Ministry of Transport. The reason is the need to refinance old bonds: cheap securities issued in 2015–2017 at 0-1% annual yields now have to be replaced with new ones yielding around 5%. "In the 2027 forecast, debt-servicing costs come to 150 billion crowns," the economist notes, adding that among Central and Eastern European countries, Czechia still spends relatively little on this compared to its peers.

The government is also counting on higher revenues — partly through the return of the electronic sales registration system (EET), which, according to the Centre for Public Finance, could bring in 13-14 billion crowns a year for the budget. However, Bělohradský says that against the backdrop of overall rising spending, this is "a drop in the ocean," and there's little hope of being saved by particularly strong economic growth and tax revenues either.

The government is required to submit the draft 2027 state budget to the Chamber of Deputies no later than 30 September 2026.

Read also: Savings accounts in Czechia: 2026 bank rates

Source: seznamzpravy.cz