Outcry over 2027 draft budget, posting second-highest deficit in history
The draft budget for 2027 is expected to run a deficit of 389 billion crowns – the second-highest deficit in the history of the Czech Republic. The proposal has sparked a wave of criticism. The opposition says it puts the country on the road to bankruptcy, while the government’s Motorists’ party has also voiced serious reservations.
Finance minister: “No other viable alternative”
The draft budget presented by Finance Minister Alena Schillerová forecasts revenues of 2.189 trillion crowns and spending of 2.578 trillion, running a deficit of 389 billion crowns.
Minister Schillerová said the budget’s main priorities are growth-enhancing investment, healthcare, national defence and other measures aimed at boosting economic growth.
She stressed that there is no alternative to increasing the budget deficit year-on-year, saying that without such a step, Czechia would risk economic stagnation and the overall costs would ultimately be higher.
The minister argued that investment would help drive economic growth, which should contribute to reducing the public finance deficit in the coming years.
According to the draft, a record 289.6 billion crowns has been earmarked for investment – 26 billion more than this year.
The budget of the State Fund for Transport Infrastructure will increase by more than 10 billion crowns, while additional funding will go, among other things, to the Road and Motorway Directorate and Czech Railways.
Defence spending is set to increase by 36 billion crowns, bringing the total to 195 billion. Consequently defence spending should reach two percent of GDP for the first time next year.
Healthcare spending will increase by around 50 billion crowns next year.
The draft budget also envisages a 36-billion-crown increase in wages for state employees. This includes a 5 to 9 percent pay rise for state employees, as well as an increase in their numbers. According to the ministry, the state should employ an additional 1,500 soldiers, 1,500 police officers and 285 school psychologists.
Proposed deficit still below EU average, but critics ringing alarm bells
The Finance Ministry said in a press release that the proposed deficit represents 2.8 percent of GDP. This is below the expected EU average of 3.6 percent and also well below the level in all neighbouring countries.
Economists, however, point out that this percentage corresponds to a deficit of only 319 billion crowns. The actual announced deficit of 389 billion crowns is equivalent to 3.5 percent of GDP, which is in line with the EU average.
The 70-billion-crown difference consists of defence spending covered by the so-called escape clause under European COFOG rules, meaning spending above that level does not have to be included in the EU expenditure framework. The Finance Ministry has therefore calculated 70 billion crowns that it does not have to report as part of the deficit to the European Commission, the Centre for Finance says.
While economists acknowledge that neighbouring countries have higher deficits relative to GDP, they say this is not a policy Czechia should follow.
The countries cited by the Finance Ministry as examples of states with higher deficits – Poland, Slovakia and Austria – are currently subject to excessive-deficit procedures by the European Commission over their public finances in previous years and are required to submit consolidation plans.
Germany is cited by the ministry as another example of a country with a higher deficit. It is responding to several years of recession with higher public spending, particularly on defence and investment. GDP growth in Germany is still estimated at a modest 0.9 percent in 2027, while Czechia is forecasting growth of 2.4 percent.
Opposition calls proposed 389-billion-crown deficit “utterly irresponsible”
Opposition party leaders have described the government’s planned deficit of 389 billion crowns for next year as “utterly irresponsible”. They say such a deficit makes no sense at a time of economic growth and will eventually lead to higher interest payments on government debt and a decline in people’s living standards.
Civic Democratic Party leader Martin Kupka says there is no excuse for such a deficit at a time of economic growth and low inflation. "This is no longer an inability to manage the country’s finances. This is a deliberate decision to indebt the country at the expense of those who cannot vote yet, but will have to pay the bills for this financial mess," he said.
Mayors and Independents’ leader Vít Rakušan argued that no country had ever become a better place to live through record borrowing. According to Rakušan, tens of billions of crowns in pre-election giveaways should be cut from the budget, and politicians need the courage to discuss how to make up for the loss of revenue following the abolition of the super-gross wage. "We will not achieve healthy public finances through cosmetic cuts and relying on economic growth alone," he added.
Pirate Party leader Zdeněk Hřib said the Babiš government had no consideration for what would come after it. "A deficit of 389 billion at a time of economic growth makes no sense. It will lead to higher prices, a dramatic increase in interest payments on government debt and a decline in people’s living standards. Instead of solving the problem, the government is burying its head in the sand," he wrote.
Motorists determined to bring down proposed deficit
The government’s Motorists party is also clearly unhappy with the size of the proposed budget deficit. Party leader and Foreign Minister Petr Macinka said he did not consider the matter closed and that he and his party colleagues would discuss the issue with Prime Minister Andrej Babiš on Thursday.
Macinka told journalists he believed the deficit would ultimately be lower than the proposed 389 billion crowns. "We will look for ways not to implement some of the spending," he said, noting that in some cases, the demands made by individual ministers on the budget were “excessive”.
Macinka did not specify where money could be saved, but he rejected tax increases.
"It is necessary to carry out some structural reforms, particularly in healthcare, social services and education, and to look at national subsidies," he said.
At Thursday’s meeting with Babiš, Motorists representatives will present proposals for changes to next year’s budget, as well as legislative proposals needed to draw up the 2028 budget.
"If we fail to agree on at least some of our proposals, the Motorists will have a really big problem approving the budget," Macinka added.
The government will continue debating the draft budget throughout September. The final draft must be submitted to the Chamber of Deputies by the end of the month. The ruling coalition has enough votes in the lower house to push the draft through – provided it remains united.
