Czech Prime Minister Petr Fiala has acknowledged that the government’s proposed two percent reduction in public sector salaries may result in some state employees losing their jobs. However, he also emphasized that alternative measures could be implemented, and the extent of job losses would depend on the decisions made by individual ministries.

During an interview, Fiala stated that while some departments may resort to layoffs, others could opt not to fill vacant positions, refrain from hiring individuals to replace retirees, or eliminate certain departments or unions. He clarified that the goal of reducing the volume of salaries in the public sector by CZK 9.7 billion, equivalent to the mentioned two percent, does not necessarily imply across-the-board salary cuts for state employees.

Fiala explained that the intention is not to decrease anyone’s salary directly but to achieve an overall reduction in the total amount spent on salaries. He further highlighted that each state organization does not necessarily need to reduce salaries by two percent; the target must be met collectively. The government’s presentation of an austerity package and proposed pension reform included the aim to eliminate 22 tax exemptions as part of efforts to enhance public finances and save money.

Under the proposed reforms, the current three VAT rates would be consolidated into two: a reduced rate of 12% and a standard rate of 21%. However, taxes such as property tax, employee and corporate taxes, as well as taxes on tobacco, alcohol, and gambling, would see increases. The comprehensive package comprises 58 measures anticipated to have a positive impact on the state budget deficit, amounting to nearly CZK 148 billion, over the next two years.

The government plans to reduce state spending by CZK 78.3 billion during this period, with CZK 62.4 billion in 2024 and CZK 15.9 billion in 2025. Fiala previously emphasized that failure to implement these measures would result in a CZK 94 billion higher budget deficit next year and a CZK 150 billion higher deficit in 2025.

The prime minister stressed the urgent need to curtail the rate of indebtedness, which he attributed to the legacy of previous populist-socialist governments. Fiala believes that taking action now is both responsible and sensible, as it would prevent the situation from spiraling out of control.

Article by Prague Forum