Economist: Austerity package to tackle national debt should be manageable for Czech households

A fierce battle is expected in the lower house this week over a government-proposed austerity package aimed at reducing the steep deficit in public finances. A recent poll by Generali Investments indicated that 81 percent of Czech citizens are concerned about its impacts on their finances. I spoke to Prague-based economist Lukáš Kovanda about whether this fear is grounded.

Could explain what changes the austerity package will bring and whether Czechs are right to be concerned about them?

Lukáš Kovanda | Photo: Karolína Němcová,  Czech Radio

“The package contains a number of tax hikes, and people are concerned that with tax hikes their living standards would worsen. These new taxes could add up on top of worsening living standards that have taken place because of high energy prices and inflation – this is the worst it’s been in the Czech Republic in the last 30 years. Many people are facing the worsening of their economic situations, accompanied by a huge decline in real wages – it’s the worst in the history of the Czech Republic since 1993. Now this consolidation package has brought some factors that may worsen their living standards. So this why they are sceptical about this package.”

What are the goals the government is hoping to address with this consolidation package?

“The main goal is to consolidate public finances. Today, we are the country with most rapidly growing debt to GDP in the whole European Union. It’s a clear sign that the Czech government needs to do something with this rapid pace of growth. The consolidation package is a key way to help deal with this.”

The forecast that this poll presents in terms of public opinion on how this package could impact people’s family budgets is quite negative. What is your forecast, is it as negative?

Illustrative photo: Oleg Gamulinskij,  Pixabay,  Pixabay License

“I don’t expect that this package is going to affect households very negatively. I think the final version of the package will be even softer than the current one. I still think that the impact on households will be quite minor, and it will be manageable for households to tackle the impacts of the package.

“But I think there is a problem with the fact that the government was promising to not increase any taxes, and they did, after the Russian invasion of Ukraine. So the general public is a bit confused about this and disappointed in the government not fulfilling its promises, which were a key pillar before the election.

“It’s a problem with the general communication of the government – it seems to me it’s not very competent in this kind of communication, and that is a key part of the frustration amongst the general public. But in the end, I do not expect that this package is going to be so strong that it will negatively impact socio-economic groups in the Czech Republic, including pensioners, people who are unemployed, and so on.”