Czech gov’t wins confidence vote, faces Covid surge, soaring inflation, record budget deficit

Petr Fiala

Prime Minister Petr Fiala’s government won a vote of confidence on Thursday evening. The result came as no surprise as his coalition enjoys a majority of 108 mandates in the 200-seat lower house. Preceding the vote, however, was a contentious debate lasting over 22 hours. The sparring highlighted sharp divisions over how to tackle the Covid pandemic and soaring inflation – while reducing the record-high budget deficit.

Petr Fiala, a political science professor and leader of the centre-right Civic Democrats, has pledged to slash 80 billion crowns (well over 3 billion euros) of spending this year.

At the same time, among others “urgent priorities”, he wants to stabilize the Czech economy, tackle pension reform, and invest heavily in transportation infrastructure – all without imposing painful tax increases.

“We’re not populists,” Fiala told lawmakers in his opening speech before Thursday’s parliamentary debate. “We’re not promising anything that we’re not certain we can fulfil.”

Czech Parliament | Photo: Kateřina Šulová,  ČTK

The challenges that lie ahead of Fiala’s five-party coalition government are certainly daunting. Foremost is the sharp spike in coronavirus infections, driven by the highly contagious Omicron variant sweeping Europe.

At the same time, inflation jumped to a 13-year high of 6.6 percent in December, on the back of soaring energy prices, and is projected to reach 9 percent in January.

“Our government team will not be serving our country and its citizens at an easy time. The combination of rising inflation, energy crises and the Covid pandemic undoubtedly finds our citizens in the most difficult year since the very creation of our independent state.”

Fiala aims to bring the budget deficit below 300 billion crowns, which would bring the public sector gap under 4 percent of gross domestic product, a “fiscally responsible” threshold. Working in his favour is that the Czech Republic still has the lowest jobless rate in the EU, at 3.5 percent. At the same time, policymakers want to prevent a wage-price spiral.

“Above all, we want a state that does not live on debt. Because every debt must one day be repaid. And the later it is repaid, the bigger and more painful the instalments will be.

“Inflation stems from wasting money borrowed by the state. We have been struggling with this since last autumn, and according to economists, it will continue throughout this year (…)

“At the same time, we want to give our citizens the certainty that the state will not increase their taxes ruthlessly. That is why we have committed ourselves to creating a tax rule setting a ceiling on the overall tax burden.”

Andrej Babiš | Photo: Kateřina Šulová,  ČTK

The government’s first concrete step to achieve savings was a freeze on some public sector salaries. Critics, independent economists among them, argue that a fiscal consolidation of the order Fiala suggests will be impossible without painful tax increases.

Chief among these critics, unsurprisingly, is former prime minister Andrej Babiš – whose ANO party is the largest in parliament, with 72 seats. In Thursday’s debate, he accused the new government of “deceiving citizens with a barrage of empty slogans”.

One thing is certain. The new government, its successes and failures will soon have a higher international profile, when the Czech Republic takes up the rotating EU presidency in July. That, Fiala says, will be a “unique opportunity to regain a reputation on the international level as a reliable and respected partner”.