In a significant move to address the unsustainable growth of the Czech Republic’s debt burden, President Petr Pavel has announced his decision to sign the government’s austerity budget package into law. The package, designed to curtail state spending by up to CZK 150 billion over the next two years, aims to stabilize public finances and reduce the national debt.

President Pavel, in a video posted on Twitter, emphasized the necessity of approving the measures to counter the escalating budget deficit. He noted that failure to implement these measures would result in more significant damage to the country’s financial stability.

The package, proposed by the coalition government of Petr Fiala, primarily focuses on eliminating tax exemptions. Notably, it introduces a simplified VAT rate of 12 and 21%, increases the corporate income tax rate from 19 to 21%, and raises property tax by an average of 80%. Additionally, excise duty on alcohol is set to increase by 10% over the next two years, followed by an additional 5% in the subsequent year.

The opposition has criticized the package, arguing that it disproportionately raises taxes. ANO’s parliamentary group leader, Alena Schillerova, hinted at a potential challenge to the package at the Constitutional Court if the President did not exercise a veto.

The government’s goal with this austerity measure is to consolidate public finances and reduce the structural deficit of the state budget. Finance Minister Zbynek Stanjura has consistently highlighted the urgency of addressing the country’s fiscal challenges, emphasizing the need for consolidation.

While the package and adjustments to the pension system found favor with the Czech Fiscal Council, unions strongly oppose the measures. This opposition is set to manifest in a broad-based strike organized by the CMKOS umbrella organization of unions.

The approved package is expected to come into force on January 1, 2024, with President Pavel committing to monitoring next year’s state budget closely. The move reflects a strategic effort by the Czech government to navigate financial challenges, with proponents asserting that it will benefit citizens and companies, allowing for the acceleration of key strategic investments.

Article by Prague Forum