Czech lawmakers back government’s $6.5 billion deficit-cutting plan

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PRAGUE (Reuters) – Czech lower house lawmakers approved on Friday the centre-right government’s 151 billion crown ($6.47 billion) package of spending cuts and tax hikes aimed at cutting the budget deficit in the next two years.

Prime Minister Petr Fiala’s government is using the package to cut the fiscal deficit to 2.2% of gross domestic product in 2024, from 3.6% forecast this year, falling below the European Union-mandated 3% ceiling for the first time since 2019.

The country’s public sector deficit has soared since 2020 with increased spending during the coronavirus pandemic followed by subsidies to shield the public from soaring energy prices and high inflation that has triggered a fast rise in pensions.

The government is targeting a 2024 central government budget gap of 252 billion crowns, a level still higher than deficit levels seen during the 2008-09 global crisis. The central budget is the main part of the country’s fiscal system.

This year’s central budget gap is targeted at 295 billion crowns.

Besides higher spending pressures, a past personal income tax cut approved by a previous government – but supported by Fiala’s party – has created a big budget hole.

The consolidation package approved on Friday includes hikes in the corporate tax rate, higher taxation of high-earning employees and real estate. A deficit reduction is also to come from cuts in state subsidies, mainly for energy, which is being shifted to consumers.

The state budget watchdog has said planned consolidation is mainly aimed at preventing a further worsening in public finances and that future spending commitments need higher revenue sources in the budget.

State debt has risen from 30% of GDP in 2019 to nearly 45% forecast for this year by the finance ministry.

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