The annual report of the Czech Supreme Audit Office (NKÚ) for last year highlights the deepening structural deficit of the state budget as the main macroeconomic problem facing the country. The President of the NKÚ, Miloslav Kala, identified the growth of mandatory expenditures and increased borrowing as the primary cause of the structural deficit. He also stated that domestic inflation, the fifth-highest in the EU, significantly reduces the population’s living standards.

Kala suggests that significant savings can be found in the subsidy system, which the NKÚ considers redundant and uncontrollable. However, he acknowledges that the war in Ukraine and its effects affected the economic condition of the Czech Republic last year. Still, most of the deficiencies highlighted in the report have no relation to the war or are only very peripheral ones.

The NKÚ report also points out that the system for protecting citizens is in trouble. However, the Ministry of the Interior has rejected the criticism. The government aims to reduce the structural deficit by one percent of the gross domestic product, approximately 70 billion Czech crowns annually. To achieve this goal, the government has passed a law that reduces the increase in pensions scheduled for June this year, which is expected to bring savings in the coming years.

The report suggests that stabilizing public finances is impossible without reforms to the pension, healthcare, and social security systems. The government coalition is also working on pension reform. Public finances ended with a deficit of 3.6 percent of GDP last year, and the state debt rose to 44.6 percent of GDP from 42 percent in 2021, making the debt burden the highest since the founding of the Czech Republic.

The Ministry expects a public finance deficit of 4.2 percent of GDP and a debt increase of 45.8 percent this year. The NKÚ reports that, in European comparison, the growth rate of state debt was the third-highest in 2022. The report further highlights that state budget spending has increased by CZK 705 billion over the last five years, but revenues have only increased by CZK 351 billion. In 2016, payments covered 102 percent of expenditures, but in 2021, they only covered 89 percent.

In conclusion, the annual report of the Czech Supreme Audit Office emphasizes the deepening structural deficit of the state budget as the primary macroeconomic problem facing the country. The report suggests that significant savings can be found in the subsidy system, and stabilizing public finances is impossible without reforms to the pension, healthcare, and social security systems. The government aims to reduce the structural deficit by one percent of the gross domestic product and has passed a law that reduces the increase in pensions scheduled for June this year.

Article by Prague Forum