MNI INTERVIEW: Czech To Ease Fiscal Rules-FinMin Schillerova

The Czech Republic will look to soften fiscal rules while keeping structural deficits “safely” below 3% of GDP thanks to a combination of revenue raising measures, higher economic growth and efficiency savings, Finance Minister Alena Schillerova told MNI.

"The government has submitted an amendment to the Czech Budget Responsibility Act for consultation, which includes the mandatory implementation of European Directive 2024/1265 and Regulation 2024/1263. We propose adoption in an accelerated legislative procedure so that, in accordance with European legislation, we can reorient ourselves as soon as possible towards a concept that follows the trajectory of net expenditure growth over a 4-7 year horizon," Schillerova said in emailed responses to questions.

Czech fiscal responsibility rules have historically been stricter than European ones, with local governments in particular accumulating significant surpluses, she said.

Schillerova said the proposal brings local rules into line with Europe’s, while sticking to a trajectory of sustainable growth in net expenditure. "But you can certainly not expect me to repeat the blunt cuts of previous governments, which only stifled economic growth and disrupted social harmony.”

“Except for the most challenging Covid years, we have kept our structural balance below the 3% GDP deficit threshold, and I want to keep the state budget deficits safely below this threshold. I do not see the government's program as an obstacle, but rather as a tool,” Schillerova said.

Schillerova, a member of Prime Minister Andrej Babis’s ANO party, did not set a timetable for presenting a new state budget before parliament, although a “sophisticated economic strategy” has been prepared, the implementation of which will begin “immediately,” with the aim of kick-starting “higher economic growth significantly above 2% of GDP per year.”

ANTI TAX-AVOIDANCE

Revenue-raising plans include the reintroduction of the electronic records of sales, the Digital Tax Cobra - a clampdown on tax avoidance - a “rigorous” fight against illegal employment and carousel fraud, and transfer price controls. (See MNI INTERVIEW: CNB May Look Through Sub-Target CPI- Kral)

“We will not raise taxes, but we will rigorously collect existing taxes, combat the grey economy, and fight tax fraud,” Schillerova said. New measures to more accurately record electronic sales - EET 2.0 -  will boost VAT, income tax and social security contributions, with exact revenues currently being calculated.

The new government will support innovative companies and start-ups through a depreciation policy of indirect incentives, facilitating greater pension fund investment, and reducing the tax and administrative burdens on sole traders and companies, freeing up capital for investment and job creation, Schillerova said.

To avoid delays in receiving European funds - something the previous Czech government failed to prioritise, according to Schillerova, the drawdown of individual operational programmes will be monitored, with individual ministries reporting to her on a monthly basis.

NATO COMMITMENT

The Czech Republic will “at the very least” comply with the obligation under Czech law to spend 2% of GDP on defence annually, though there is not yet agreement on whether to commit in future to the 5% total agreed by NATO, Schillerova said.

“I do not want to prejudge what the coalition consensus will be.”

Schillerova said she had already taken steps to shrink the number of public servants, after an increase - many of them teaching assistants in primary schools “in the area of inclusive education,” and soldiers - relative to those in the productive sector, in recent years.

She declined to say how much money this will save, but said it was enough “to make it worthwhile for me, as minister of finance, to push for it,” with job losses at the Finance Ministry itself already setting an example.

Overall, she said, state operating expenses will be reduced by 5-10% in each budget chapter, with the precise location of meaningful cuts, “not only in terms of jobs, but also unnecessary agendas”, to be identified over coming months.

What success the previous government experienced in lowering the cumulative structural-to-GDP public deficit, which fell by around 1.5% between 2021 and 2025, was due more to inflationary GDP growth than to consolidation, Schillerova said. “Our government would certainly have done more to curb inflation.”