NKÚ: Pensions are a ticking budget bomb

Miloslav Kala, the President of the Czech Supreme Audit Office (NKÚ), has identified the deepening structural deficit of the state budget, caused by the growth of mandatory expenditures and increased borrowing, as the main macroeconomic problem facing the country. He stated this in the NKÚ’s annual report for last year.

Kala also pointed out that domestic inflation, which is the fifth highest in the EU, significantly reduces the population’s living standards. Indexing pensions during double-digit inflation is a timed budget bomb. Stabilizing public finances is impossible without reforms to the pension, healthcare, and social security systems.

The NKÚ published the report on Monday. The office believes that significant savings can be found in the subsidy system, which it considers redundant and uncontrollable.

The President of the NKÚ acknowledges that the war in Ukraine and its effects affected the economic condition of the Czech Republic last year. However, according to him, most of the deficiencies highlighted in the report have no relation to the war or are only very peripheral ones.

According to the NKÚ, the system for protecting citizens is in trouble. However, the Ministry of the Interior has rejected the criticism. Prime Minister Petr Fiala (ODS) stated last Thursday that the government aims to reduce the structural deficit by one percent of the gross domestic product, approximately 70 billion Czech crowns annually.

The government has also passed a law in Parliament that reduces the increase in pensions scheduled for June this year, which is expected to bring savings in the coming years. The government coalition is also working on pension reform.

Last year, public finances ended with a deficit of 3.6 percent of GDP. 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.

According to the NKÚ, 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.

“As a result, the Czech Republic remains one of the fastest-growing countries in the European Union, and this trend threatens the stability of public finances,” the annual report states.