Czech government’s austerity package gets green light in lower house

The Fiala government has won approval for its austerity package in the Chamber of Deputies. The set of reforms, which aims to put a handbrake on the growing deficit in public finances, includes tax hikes, cuts in subsidies and lay-offs and will impact individuals and companies alike.   

Zbyněk Stanjura | Photo: Office of Czech Government

The austerity package, which the government presented to Parliament halfway through its term in office, will radically shake-up public spending. The package, which contains over 60 legislative changes, aims to cut the growing deficit in public spending by 97 billion crowns next year and by 150 billion by 2025.

In order to meet this goal, the Fiala administration has had to break its election promise not to raise taxes. The tax burden on the Czechs will thus be the highest since 2020. Finance Minister Zbyněk Stanjura argues that this step was inevitable.

"I want to remind you that we paid 50 billion crowns in debt interest last year, this year it will be 70 billion and next year 95 billion. It is high time to change to lower gear and slow down so that in a few years’ time we do not find ourselves pulling the emergency break and hitting the wall. I ask you now, in the name of the government, to support this package, so as to help us get our public finances under control and not fall into the debt trap.”

Alena Schillerová | Photo: Andrea Filičková,  Czech Radio

The opposition ANO party, which fiercely opposed the changes, claims the measures will hurt companies and individuals, raise inflation and undermine economic growth. Former finance minister Alena Schillerová:

“What angers me most is that this government lied to us. They lied before and after the elections when they promised not to raise taxes. They promised to decrease expenditures, but all they are doing is introducing tax hikes. Families will have to fork out an additional 5 to 6 thousand crowns a year, and it will have a disastrous impact on companies.“

The package includes changes to the VAT system, introducing only two rates of 12% and 21% instead of the current three, an increase in corporate taxes and drastic cuts in non-investment subsidies.

State institutions will face cuts in operating costs and wages. People will pay higher property tax. Levies on gambling, alcohol and tobacco will be raised and over twenty tax exemptions will be abolished, further increasing state revenues.

The state will stop paying for renewable energy and shift the burden to people and businesses.

Photo: Kateřina Šulová,  ČTK

The government’s austerity plans will also inevitably impact pensioners. Pension growth will slow substantially in the coming years. Early retirement will be heavily penalized and the retirement age, now set at 65, will gradually be pushed up.

The centre-right ruling coalition says the austerity measures are inevitable if Czechia is to avoid a Greek-style debt crisis. Although the majority of Czechs agree on the need to economize a survey by Generali Investments indicated that over 80 percent of people are worried about the impact of the government’s austerity package on their family budgets. And a CVVM poll shows support for the government has hit an all-time low with only 25 percent of Czechs saying they trust the administration.