The state budget deficit reached a record level, the Czech Republic has the fastest growing debt among EU countries and one of the lowest economic growths
Opinion of the SAO on the Draft State Closing Account of the Czech Republic for the year 2021 (29 August 2022)
In its opinion on the draft state closing account of the Czech Republic for 2021, the Supreme Audit Office (SAO) concluded that the Czech Republic had the fastest growing debt among countries of the European Union (EU) last year, the state budget deficit exceeded its worst outcome of 2020, and the Czech Republic joined the list of countries with the lowest rate of economic growth in the EU. On the other hand, the Czech Republic has the lowest unemployment rate in the EU.
Although the Czech Republic kept its position as one of the least indebted countries of the European Union, it was a country with the fastest growing debt on a year-to-year basis. The share of public debt in relation to GDP increased by 4.2 percentage points year-on-year, which was the largest share of all EU countries. “While twenty EU countries managed to reduce their debt in relation to GDP year-on-year in 2021, our debt had increased by more than four percentage points”, said SAO President Miloslav Kala. According to Mr Kala, the high proportion of mandatory1 and quasi-mandatory2 expenditure of the State is a hindrance to better results: “Without a substantial reform of this type of expenditure — starting with a reduction in state-guaranteed agendas — without the introduction of higher efficiency, the acceleration and shrinking of the state apparatus, and reforms of all systems, including the social and health systems, public budgets cannot be consolidated. Even in times of economic growth,” Miloslav Kala pointed out.
It is mandatory and quasi-mandatory expenditures that already absorbed almost 94% of government revenue in 2021. Only 6.4%, i.e. approximately CZK 95 billion, was left for the government to respond to current economic and social problems or to kick-start the economy through investments. If steps are not taken to make savings in the expenditure part of the state budget, it will be necessary to strengthen its revenues.
The state deficit reached almost CZK 420 billion in 2021. Thus, it exceeded the worst result of 2020 by more than CZK 52 billion. This is despite the fact that the economic restrictions related to the COVID-19 pandemic last year did not reach the same level as in 2020.
Last year, the Czech Republic joined the list of countries with the lowest rate of economic growth in the EU when its GDP grew by 3.3% year-on-year, i.e. by 2.1 percentage points lower than the EU average. Only Slovakia and Germany reported lower GDP growth compared to the Czech Republic. A higher year-on-year GDP growth was mainly hindered by a markedly worse external trade balance year-on-year. It concluded the year 2021 with a deficit of CZK 1.5 billion, contrary to the large surpluses of the recent years. Such a development was driven by higher prices of imported goods, in particular oil and natural gas, and a lower foreign demand.
On the other hand, the Czech Republic maintained its lowest unemployment rate in the EU in 2021 at 2.8%. It was thus lower by 4.2 percentage points than the average unemployment rate in the European Union (7%).
The amendment to the Budgetary Tax Determination Act was intended to generate additional revenues for municipalities and regions and to mitigate the personal income tax gap following the abolition of the super-gross wage. After consolidation, the management of territorial budgets ended in a surplus of CZK 41.3 billion and year-on-year increased by CZK 27.3 billion. The balance of the regional government’s bank accounts reached CZK 367.5 billion at the end of 2021. It increased by CZK 47.4 billion year-on-year. “Regional budgets need a reserve. However, one must ask whether the current reserves are not too excessive, especially when they are depreciated by high inflation," added the President of the Supreme Audit Office.
1] Expenditure stipulated by laws and treaties.
2] Expenditure necessary for the operation of the State.
Communication Department
Supreme Audit Office