Government approves 2026 budget reflecting new priorities
The coalition government of Prime Minister Andrej Babiš on Monday approved the state budget for 2026. Due to time pressure, the draft is a revised version of a proposal put forward by the previous administration, with a 24 billion crown higher deficit, increased funding for transport infrastructure and social needs, but less money for military spending.
Shortly after taking office in mid-December, the new ruling coalition of ANO-SPD - Motorists rejected a budget proposal prepared by the former coalition in the Chamber of Deputies, on the grounds that it was “unrealistic” with artificially inflated revenues and missing expenditures to the tune of 96 billion crowns.
Due to time pressure, the Finance Ministry reworked the proposal to reflect what it called realistic revenues and the new cabinet’s own priorities.
The new draft budget, approved on Monday, envisages revenues of 1.978 trillion crowns and expenditures of 2.288 trillion crowns, excluding the impact of European Union projects. Compared with the proposal of the previous cabinet, expected revenues are 5.2 billion crowns lower, while expenditures are 18.8 billion crowns higher. The projected deficit is 310 billion crowns.
Finance Minister Alena Schillerova defended the budget as realistic and pro-growth:
“The government’s revision of the former proposal involved correcting artificially inflated revenues and deliberately understated expenditures. The result is a deficit of 310 billion, only 24 billion more than the original, completely unrealistic deficit. Moreover this additional 24 billion crowns will go entirely to pro-growth investments,” she said.
Compared with the previous draft, this proposal increases funding for transport infrastructure by 26 billion and has allotted an additional 17 billion crowns to the Ministry of Labour and Social Affairs for mandatory expenditures- predominantly higher wages and social benefits.
By contrast, the armed forces are set to lose 21 billion crowns. Total defence spending in this year’s state budget will amount to around 185 billion crowns, which represents 2.07 percent of GDP. Defense Minister Jaromir Zůna said all existing Defence Ministry projects will continue. According to the minister, the 21-billion-crown reduction in the defence budget will affect new projects that have not yet been announced. These projects are not being cancelled, but postponed until 2027, he noted.
Cut-backs in government expenditures are an essential part pf the picture. Minister Schillerová said the government would save ten percent on the running costs of the state.
It also plans increased revenues through the return of EET –an electronic cash register system targeting tax evasion and taking measures against the grey economy, which according to the Financial Administration, creates losses amounting to tens of billions of crowns annually.
Budget Responsibility Act and criticism from the opposition
The revised budget has sparked a storm of criticism from the opposition.
“At a time when the economy is growing, and the unemployment rate and inflation are relatively low drafting a budget with a deficit of 310 billion is irresponsible and stupid,” says Lukas Vlcek from the Mayors and Independents.
The head of the opposition Christian Democrats Marek Vyborny argues that “By failing to increase spending, Czechia wants to get a free ride on NATO’s collective defence” which he says is “bad news both for the security of our citizens and for our allies, whom we are effectively turning our backs on.”
Opposition politicians moreover claim that the government has violated the Budget Responsibility Act, which sets a maximum limit for the public finance deficit.
Last year, the state budget deficit reached 290.7 billion crowns. Under the Budget Responsibility Act, the maximum allowed deficit for this year is 237 billion crowns.
Minister Schillerová counters that the increased deficit was inevitable due to the former government’s poor financial management and missing funds for mandatory expenditures. Still, she is convinced that the government has not breached the respective law. According to her, the law applies only to budgets debated within the standard timeframe.
“If you look closely at the legislation, you will see that it refers to a regular legislative process which traditionally takes place in September. It does not hold for situations such as this, which involve revising a budget by a new administration after it has been rejected in its first reading.”
The Babiš government now wants to adjust the rules in line with new European ones, which reflect much higher levels of debt in large European economies such as France or Italy. These EU rules address countries whose debt exceeds 60 percent of GDP or whose deficit is above three percent of GDP. Neither applies to the Czech Republic. According to Eurostat Czech public debt stood at 43.1 percent at the end of the third quarter of last year. Minister Schillerova says that after this first difficult year state finances will gradually improve.
“We will keep the budget deficit safely below three percent of GDP so as not to breach the so-called Maastricht criteria,” Schillerová said in an interview with Novinky.
Provisional budget likely to remain until mid-March
Since the beginning of January, the Czech Republic has been operating under a provisional budget, which limits investments, subsidies and other non-mandatory expenditures. Lawmakers are due to start debating the budget proposal on 4 February, with final approval expected on 11 March.
