The Czech government has proposed a package of measures aimed at controlling the country’s ballooning budget deficit. The proposals include higher taxes on alcohol, tobacco, and betting. Citizens are also likely to pay more for medicine and beer. Corporate taxes will be increased, and businesses will face higher rates. The government hopes the measures will reduce the deficit by 94 billion Czech crowns in 2024 and 148 billion in 2025.
Prime Minister Petr Fiala warned that the debt rise was a threat and that the measures proposed were necessary. The five-party ruling coalition agreed on the measures as a compromise after winning the parliamentary election in 2021, defeating populist Prime Minister Andrej Babis and his centrist ANO movement.
Most of the measures require approval from both houses of Parliament, where the coalition has a majority, and presidential approval before they become effective next year. State subsidies will be reduced by 54 billion Czech crowns in the next two years, and state expenditures will be cut by 21 billion.
The government plans to increase the corporation tax by two points to 21%, while property tax rates for individuals will also go up. The value-added tax will have two rates of 12% or 21%, rather than the current three rates. Medicines will be taxed at 12%, up from 10%, and beer will have a 21% VAT rate in bars.
The government has also proposed an overhaul of the pension system. The EU’s high inflation rate causes pension increases. The reforms will slightly reduce pensions and impose stricter rules for those who want to retire early. The measure will become effective in 2025.
The Czech Republic’s budget deficit hit a record high of 200 billion crowns in the first four months of 2023, up from 100 billion in 2020. The overall deficit for 2023 is projected at 295 billion Czech crowns or 3.5% of GDP compared with 360 billion last year.
The government’s intentions have been met with strike threats from unions. It can only be speculated whether the government’s proposals will alleviate the country’s budget deficit.