National Budget Council Slams Czech Deficit Plan as "Not Credible"

The Czech National Budget Council (NRR) delivered a scathing critique of the government's fiscal policy on Thursday, stating that the plan to reduce the public finance deficit in the coming years lacks credibility. According to the Ministry of Finance, the structural deficit of public finances will worsen by one percentage point next year — from 2.5% to 3.5% of GDP — a deterioration so sharp, the council noted, that it hasn't been seen since the pandemic.

Deficit Rising, Not Falling

"The trajectory of declining deficits has turned into gradual growth — in nominal terms, by 140 billion crowns over two years," the council's statement reads. According to its figures, the state budget deficit grew from 249.9 billion crowns in 2025 to a planned 310 billion crowns this year, and is expected to reach 389 billion crowns next year. This means the government is drifting further and further from its own program pledge to keep the public finance deficit "close to a balanced budget, reliably below the 3% mark."

The council acknowledges that the government may invoke the EU's escape clause, which allows defense spending to exceed the usual limits. However, it warns that using this exemption depends on whether the European Commission approves all the expenditures the government classifies under this category. If some spending is rejected or grows faster than planned, this could risk breaching EU fiscal rules.

Skepticism Over Deficit Reduction

The council expresses even greater doubt about the government's actual ability to cut the public finance deficit in subsequent years. The fiscal-structural plan envisions reducing the deficit from 3.5% of GDP in 2027 to 2% in 2028, which the NRR estimates would require budget consolidation of roughly 130–140 billion crowns in current prices.

"The NRR therefore sees substantial risks that the planned trajectory for reducing public budget deficits will not be met, and does not consider the path toward lowering the overall deficit to be credible," the council's statement says.

In 2029, when Czechia holds its parliamentary elections, the plan calls for yet another round of consolidation — around 40 billion crowns. Meanwhile, the NRR believes defense spending significantly narrows the room for further use of the EU's fiscal rule exemption: if this exemption needs to be extended into 2028 as well, defense expenditures would have to rise considerably above 2% of GDP.

The council also pointed to a discrepancy between the legally mandated pension indexation and the amount the government plans to allocate for pension increases starting in January. Legal indexation would mean raising the average pension by 300 crowns, increasing spending by 11 billion crowns. Yet the draft budget earmarks a spending increase of 19.2 billion crowns for pensions right away.

Source: novinky.cz