Government approves draft state budget for 2025 with record investments, amended budget 2024 will increase spending on flood damage

Record investments in transport infrastructure, increased money for education, science and defence and spending to cover the consequences of the September floods are all included in the draft state budget for 2025 with a deficit of CZK 241 billion, which was approved by the government today. At the same time, the cabinet decided that the amendment to this year's state budget will increase spending by CZK 30 billion to cover the consequences of flood damage quickly.

"We have managed to keep the key priorities of the government and, of course, all the legal obligations, and we have also found a reasonable compromise for the year-on-year increase of all budget chapters from national sources so that social peace is maintained. Crucially, this budget also includes record investments that come from national sources and not just EU funds," says the finance minister Zbyněk Stanjura and adds: "While we are consolidating public finances, we do not want to reduce the deficit at the expense of investment activity. The state should invest a lot because the prosperity of individual regions and economic growth depend on quality and accessible services such as transport, education, access to health care and social services." 

In addition, the budget will also deal with the consequences of the September floods in a number of regions, both by boosting 2025 spending by CZK 10 billion compared to the August proposal and by amending this year's budget, which will increase spending and the resulting deficit by CZK 30 billion. The deficit in this year's budget will thus widen to CZK 282 billion.

"Public budgets are supposed to take care of the renewal of public infrastructure, so we have additionally added a total of CZK 40 billion to the 2024 and 2025 budgets, under the heading of General Treasury Administration. The bulk of this will come from this year's budget as part of the amendment," says Minister Stanjura, adding that although the budget deficit will be increased, this does not mean that the entire flood reserve will actually be used. "The flood expenditure is only a rough estimate at the upper limit because the damage has not yet been quantified. Actual spending on reconstruction of flood-affected areas will depend on the specific subsidy programmes that individual ministries will announce once we have more accurate damage estimates from the regions. In my estimation, the actual budget expenditure on flood damage will thus be lower than projected in the 2024 amendment and next year's draft budget," adds the Finance Minister. 

Extraordinary flood expenditure should not enter the structural deficit. Its reduction should therefore continue at a rate of 0.5 % of GDP in 2025. The medium-term budget outlook foresees a state budget deficit of CZK 225 billion in 2026 and a deficit of CZK 180 billion in 2027.

Note: Excluding money from the EU and financial mechanisms, the draft state budget envisages revenues of CZK 1931.8 billion (vs. CZK 1811.4 billion in 2024), expenditures of CZK 2172.8 billion (vs. CZK 2063.4 billion) and a deficit of CZK 241.0 billion (vs. CZK -252.0 billion).

Of the total expenditure CZK 2327.1 billion forms the largest volume Mandatory and quasi-mandatory expenditure (salaries and EU contributions) in the amount of CZK 1,796.9 billion (year-on-year increase by CZK 62.7 billion). Of this, the Mandatory, i.e. statutory expendituree will reach CZK 1,369.1 billion (+35.2 billion CZK). investments from national sources CZK 153.5 billion (year-on-year increase by CZK 35.6 billion), or CZK 249.6 billion after including EU funds (year-on-year increase by CZK 65.0 billion), current government expenditure will increase by CZK 70.0 billion, i.e. by 3.5 %. 

The structure of spending reflects the government's priorities. Funding for Education were increased by CZK 21.9 billion in the chapter of the Ministry of Education, including EU sources, which also includes a year-on-year increase in expenditure on universities by CZK 4.0 billion from national sources. Thus, higher education will receive CZK 1.0 billion more than in the August draft budget. The government has thus used the CZK 1.0 billion available as a reserve up to the maximum allowed budget deficit under the expenditure frameworks. Total spending on science, research and innovation will increase by CZK 3.7 billion year-on-year to CZK 51.6 billion, including EU funds. The largest share will go to the Ministry of Education (CZK 22.9 billion, an increase of CZK 2.4 billion). The budgets of the chapters of the CAS, TAČR, GAČR and the Ministry of Health will also be strengthened. 

State investment will be directed primarily to transport infrastructure, capital expenditures of the Ministry of Transport will reach a total of CZK 93.3 billion including EU resources (an increase of CZK 51 billion). "At the moment, 42 sections of motorways have been built and next year the construction of more than 100 km will begin, for example the Prague ring road from Běchovice to D1, another part of the D35 motorway to Lipník n. Bečvou or the bypass of Breclav. Railway corridors will also be expanded," says Minister Stanjura. 

Mandatory expenditure (CZK 1 796.9 billion) represents social transfers and subsidies (social benefits including pensions) amounted to CZK 936.8 billion (increase by CZK 26.6 billion), of which pensions CZK 717.2 billion (an increase of CZK 11.0 billion). Debt service expenditure are expected to reach CZK 100 billion next year (an increase of CZK 5 billion). The statutory annual volume defence spending 2 % of GDP (in 2025 it is CZK 160.8 billion) is spread over several budget chapters - in addition to CZK 154.4 billion in the chapter of the Ministry of Defence, defence expenditures are also made in the chapters of the SSHR, NUCIB, NSA and MFA. 

For teachers, who are guaranteed by law 130 % of average salary, 7 % more was allocated for salaries than last year (a total of CZK 103.5 billion, an increase of CZK 6.6 billion), while for other civil servants the budget foresees an increase in the amount of money for salaries by 5 % (total CZK 286 billion, an increase of CZK 19.4 billion). In their case, however, the government has yet to decide whether the increase will go exclusively to the tariff component or also to the above-tariff component and in what proportion.  

The largest budget chapters (including EU funds) are still the Ministry of Labour and Social Affairs with the budget funds amounting to CZK 968.8 billion (year-on-year increase by CZK 42.2 billion due to the increase in mandatory expenditures by law), the Ministry of Education with the budget of CZK 290.8 billion, and the Ministry of Education with the budget of CZK 1.5 billion. CZK (year-on-year increase of CZK 21.9 billion), the General Treasury Administration with CZK 269.1 billion (decrease of CZK 4.5 billion), the Ministry of Defence with a budget of CZK 154.4 billion (increase of CZK 3.2 billion) and the Ministry of Transport with a budget of CZK 139.5 billion (increase of CZK 35.8 billion). 

Total state budget revenues should reach CZK 2,086.1 billion in 2025of which the collection of social security contributions is expected to amount to CZK 809.4 billion (up by CZK 53.2 billion year-on-year), VAT collection is expected to amount to CZK 414.0 billion (+ CZK 27.2 billion), excise tax collection is expected to amount to CZK 157.0 billion (- CZK 1.7 billion). The budget also includes revenue of CZK 153.6 billion from the EU budget and financial mechanisms.

The government will send the draft law on the state budget for 2025 to the Chamber of Deputies by the end of September. It will be discussed in a state of legislative emergency, which allows for a shortening of the time limits between readings of the bill. Thus, the amendment to the 2024 State Budget will be debated by MPs as early as 1 October 2024. 

mfcr/ gnews - RoZ

PHOTO - X Office of the Government of the Czech Republic