Czech Republic unveils deficit cuts in 2025 budget draft

The Czech Finance Ministry has unveiled its 2025 budget draft, proposing a significant 9% reduction in the deficit while setting the stage for unprecedented investment levels. Submitted just before the midnight deadline on Saturday, this budget aims to shrink the fiscal gap to an impressive 2% of the GDP.

The proposed budget outlines a deficit target of 230 billion crowns ($10.2 billion), a notable decrease from the previously planned 252 billion crowns and this year’s forecasted 2.5% GDP gap.

Prime Minister Petr Fiala emphasized the dual focus of the budget: “We have prepared a budget draft for next year in which there is the most money historically for investment and at the same time we are cutting the deficit to GDP to a level around 2%.”

Key elements of the draft include maintaining defense spending at the NATO commitment of 2% of GDP, raising salaries for teachers, and channeling tens of billions into investments.
Finance Minister Zbynek Stanjura has confirmed the continuation of the windfall tax on energy companies and banks, notably affecting electricity producer CEZ, until its scheduled expiration in 2025.

The budget anticipates a 146.1 billion crown increase in income alongside a 124.1 billion crown rise in spending. Economic growth is forecasted to reach 2.7% next year, recovering from this year’s modest 1.1% growth, as the nation navigates the aftermath of an inflation surge.

However, political dynamics within the ruling coalition may influence the final budget. The Pirates party, part of the five-party centre-right coalition, has criticized the current housing allocations, labeling them “unacceptable” and indicating potential debates in the coming weeks.

The Czech government has been on a path of fiscal consolidation since the deficit peaked at 420 billion crowns in 2021, driven by the global COVID-19 pandemic and subsequent energy price surges following Russia’s invasion of Ukraine. The 2023 budget deficit stood at 288.5 billion crowns, showcasing the government’s commitment to fiscal prudence.

As the government prepares to present a finalized version to parliament by the end of September, all eyes are on the balancing act between strategic investments and deficit reduction, setting a hopeful course for sustainable economic growth.