Czech government spending drive widens deficit in 2027 budget plan

The Czech government approved a 2027 draft budget on Monday set to widen the deficit for a third straight year to keep up ‌with populist Prime Minister Andrej Babis' pledges to raise spending on public wages, road investments, healthcare and defence.

The three-party government signed off on a budget proposal with a deficit target of 386 billion crowns ($18.21 billion), Finance Minister Alena Schillerova said. That is up from 310 billion crowns expected this ‌year and 291 billion crowns in 2025.

The Czech Republic has maintained lower deficits than its peers in central and eastern Europe, keeping ‌below the European Union-mandated ceiling of 3% of gross domestic product, a level which Babis' cabinet also pledged to keep in its programme manifesto. TESTING DEFICIT LIMITS

But it is now set to exceed that deficit limit as spending rises, in line with Babis' election promises. Under the budget draft, which goes now to parliament's lower house, the deficit ⁠will widen ​to around 3.5% of GDP — although the ⁠government says it will be counted as 2.8% for the purpose of meeting EU budget targets, which allow extra borrowing for some defence spending — after 2.7% in ⁠2026.

Critics, including the budget watchdog, say the spending drive is increasing debt at a time when borrowing costs are already rising. The deficit had fallen to around ​2% of GDP in 2024 and 2025 under the previous centre-right administration. But Babis says more spending is needed to fund ⁠road and rail projects, to shore up the healthcare system and boost public sector wages.

DEFENCE SPENDING RISE STILL FACES CRITICISM Babis has also come under fire over defence ⁠spending, ​which is set to rise to 2% of GDP next year, meeting Prague's minimal NATO commitments.

But the government has refused to accelerate defence spending further, even as other member states have done so due to concerns over Russia. Czech President Petr Pavel and the U.S. envoy ⁠to NATO have criticised the government's approach. NATO has called on members to raise core defence spending to 3.5% of GDP and overall ⁠defence-related outlays to 5.0% by 2035 ⁠and some allies, including neighbouring Poland, have already boosted spending significantly above the current 2% level.

At a conference in Prague last week, the U.S. ambassador to NATO, Matthew Whitaker, said it was "disappointing" to see ‌the Czechs' lack of progress ‌towards meeting new commitments. ($1 = 21.1930 Czech crowns)