Government approves debt brake

Photo: Grant Cochrane /

The Czech government has approved a constitutional amendment to prevent it and future cabinets from borrowing and spending beyond their means, setting a limit on state debt. If approved by a constitutional majority in parliament, the measure will set the debt ceiling at 55 percent of GDP, lower by five percent than outlined in the EU’s fiscal compact.

Photo: Grant Cochrane /
The government refers to it as the “fiscal constitution”, a debt brake similar to those used by other countries in the European Union to sound the alarm when the overall public debt reaches 60 percent of GDP (or in the Czechs’ case 55). The amendment to the country’s constitution has a good chance of passing in Parliament, however, it needs a so-called constitutional majority: at least nine votes outside the ruling coalition will still need to be secured. The government, headed by Prime Minister Bohuslav Sobotka, is confident it can at the very least get those from the opposition Dawn Party which has expressed support. The party’s deputies’ group head Marek Černoch agreed on Monday a commitment to greater fiscal responsibility was necessary. He spoke to public broadcaster Czech TV:

“No one wants to see a situation where the government fails to behave in a responsible manner and plunges the country, and therefore each of us, further into debt.”

Marek Černoch,  photo: CTK
But critics charge that the amendment does not go far enough. Former finance minister and deputy leader of TOP 09, Miroslav Kalousek, suggested on Monday that 55 percent of GDP still left considerable wiggle room for the government to borrow beyond its means: for comparison, the Czech debt burden last year was 43.2 percent of GDP, so the proposed limit is not expected to be breached soon. Mr Kalousek repeated his party’s proposal to the government last year that an annual 20 billion crowns a year be shorn from overall public debt as a key measure. If the cabinet committed to such a step, Mr Kalousek said, the proposed debt brake would also receive TOP 09 support.

“Fiscal responsibility – real fiscal responsibility – is a priority for us. Last year we proposed that if the government agreed to lower the structural deficit by the minimal recommendation of 0.5 percent annually, which amounts to around 20 billion crowns, we would back not only the debt brake but the fiscal compact and all future state budgets which adhere to this principle.”

Miroslav Kalousek,  photo: Filip Jandourek
On the left side of the political spectrum, the opposition Communists have said they will not back the ceiling, for the opposite reason: they consider it too strict. The numbers, however, add up and are impossible to ignore: while the Czech public debt is not at an exceedingly high level compared with many European states, it has gone up considerably in the long-term. In 2002, the public debt per capita was 39,000 crowns; now it is 176,000 per person, not counting interest. Lawmakers will begin debating the constitutional amendment next month; if it receives a constitutional majority it will then have to be signed into law by the president.