The Czech government’s decision to suspend the indexation of old-age pensions has been met with resistance from opposition parties. Prime Minister Petr Fiala’s centre-right government wants to reduce the increase in the pension bill required by maintaining the indexation of pensions to the country’s soaring inflation rate. The government’s motivation behind this move is part of its drive to consolidate public finances after the costly measures implemented to mitigate the effects of the COVID-19 pandemic and the hike in energy prices following Russia’s invasion of Ukraine.

However, opposition parties have accused the government of trying to balance the budget on the backs of the poorest. They argue that the move will disproportionately affect the most vulnerable in society. The government’s proposal to suspend the indexation of pensions would mean that an average monthly pension will be increased by CZK 760 (€32.4) instead of CZK 1,770. The state budget is expected to save CZK 19.4bn this year and CZK 33bn in 2024 as a result of the suspension.

The opposition parties have pledged to obstruct the passing of the bill, leading the ruling coalition to invoke a state of legislative emergency, which allows it to accelerate the legislative scrutiny. The debate on the bill was paused on March 1 after a 16-hour marathon session obstructed by two populist opposition parties.

Although the coalition has a comfortable majority of 108 deputies in the chamber of 200, the bill is likely to be referred to the Constitutional Court by the opposition after eventual approval. ANO, a populist party led by controversial billionaire Andrej Babis, is using the bill as a welcome point of contention. Babis has recently been styling himself as “pro-people” to capture the remaining electorate of the Social Democrats, which fell out of parliament for the first time in Czech history in 2021.

Reform of the pay-as-you-go pension system has long been postponed by the country’s politicians. While some economists criticise the current system, more systematic reform is needed to address inefficiencies that keep in place unsystematic differences in pensions, prompting inflationary pressures. The debate on these issues is unfortunately being overlooked in the current political debate.

The ruling coalition is attempting to reduce budget deficits by cost savings while keeping taxes low, ideas which gained a strong footing in Czech post-communist politics of the 1990s and early 2000s. The coalition comprises the right-wing ODS, TOP 09, centre-right Christian Democrats, and centrist Mayors and the liberal Pirate Party, which has only four deputies.

In conclusion, the Czech government’s proposal to suspend the indexation of pensions has met with strong resistance from opposition parties, who accuse the government of trying to balance the budget on the backs of the poorest. While the ruling coalition is attempting to reduce budget deficits by cost savings, more systematic reform is needed to address inefficiencies in the current pay-as-you-go pension system. The debate on these issues is unfortunately being overlooked in the current political debate, while the populist opposition parties use the bill to gain political leverage.

Article by Prague Forum