In 2023, public finances were affected by gradual decline in inflation. In the same year, a so-called consolidation package was introduced to help put public finances back on a long-term sustainable trajectory.
Given the current low inflation rate and the consolidation efforts, it appears that public finances will return to balance almost immediately and will be on a long-term sustainable path. However, the correction will take time and the positive steps taken need to be sustained and not lose intensity. Among the imaginary burdens that will make it difficult to implement these positive changes are the decisions taken by fiscal policymakers in response to the temporary negative shocks that have hit (not only) the Czech economy in recent years. The “legacy” of the COVID-19 pandemic is, first and foremost, the abolition of the super gross wage tax, which led to a significant decline in general government revenues even in the post-pandemic period. The wave of inflation of 2021–2023 brought with it, among other things, the further introduction of so-called indexations, which will continue to have a negative impact on structural balance of the general government sector in the following years. Such developments are then reflected in an increase in the general government debt, which entails rising interest payment costs. And interest payments are a mandatory (compulsory) item in general government budgets that weigh on the general government deficit. Breaking out of this imaginary spiral is neither trivial nor a short-term affair given the structural changes made earlier in the general government expenditure and revenue.
The present Report on Compliance with the Rules of Budgetary Responsibility (“the Report on Compliance with the Rules”) provides an assessment of compliance with the fiscal rules for 2023. The preparation of this Report on Compliance with the Rules is one of the main tasks of the Czech Fiscal Council (“CFC”) set out by Act No. 23/2017 Coll., on the Rules of Budgetary Responsibility, as amended (“the Act”). Strict adherence to clearly defined and stable fiscal rules should significantly contribute to the equilibrium and long-term sustainability of public finances.
The whole report is available here.