The proposed state budget for 2025 includes record investments in transport infrastructure, increased funding for education, science, and defense, and allocations to cover the consequences of the September floods. The budget, approved today by the government, projects a deficit of 241 billion Czech crowns. Simultaneously, the government decided that an amendment to this year's state budget will increase spending by 30 billion crowns to address the rapid need to cover the costs of flood damage.

"We have managed to uphold the key priorities of the government and, of course, all legal obligations. We have also found a reasonable compromise for the year-on-year increase in all budget items from national sources, ensuring social harmony. Importantly, this budget includes record investments, which come from national sources and not just EU funds," said Finance Minister Zbyněk Stanjura, adding: "Even as we consolidate public finances, we do not want to reduce the deficit at the expense of investment activity. The state must invest heavily because the prosperity of individual regions and economic growth depend on high-quality and accessible services such as transportation, education, healthcare, and social services."

In addition, the budget will also address the consequences of the September floods in several regions, both through increased spending of 10 billion crowns in 2025 compared to the August proposal, and through an amendment to this year's budget, which will increase spending and the overall deficit by 30 billion crowns. This will increase this year's budget deficit to 282 billion crowns.

"Public budgets should be used to restore public infrastructure. Therefore, we have added a total of 40 billion crowns to the 2024 and 2025 budgets, allocated to the General Treasury Administration. The majority of this will come from this year's budget through its amendment," said Minister Stanjura, noting that even though budget deficits will increase, this does not mean that the entire flood reserve will actually be used. "The flood-related expenses are currently only roughly estimated at the upper limit, because the damages have not yet been quantified. The actual costs of reconstructing areas affected by the floods will depend on specific grant programs announced by individual ministries, and on more precise damage estimates from the regions. Based on my estimate, the actual budget expenditures for damage caused by the floods will be lower than planned in the 2024 amendment and the proposed budget for next year," added the Minister of Finance.

The extraordinary flood-related expenses should not be included in the structural deficit. Therefore, the reduction of the structural deficit should continue at a rate of 0.5% of GDP in 2025. The medium-term budget outlook projects a state budget deficit of 225 billion crowns in 2026 and a deficit of 180 billion crowns in 2027.

Detailed overview of the proposed state budget for 2025 and the amended budget for 2024, including funds from the EU and financial mechanisms
State Budget 2024State Budget 2024 AmendmentState Budget 2025
State budget revenues1,940.01,940.02,086.1
State budget expenditures2,192.02,222.02,327.1
State budget balance-252.0-282.0-241.0

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

Of the total expenditures of 2327.1 billion CZK, the largest portion consists of mandatory and quasi-mandatory expenditures (salaries and contributions to the EU), totaling 1796.9 billion CZK (a year-on-year increase of 62.7 billion CZK). Of this, the mandatory expenditures, as defined by law, amount to 1369.1 billion CZK (+35.2 billion CZK). Next year will see record investments from national sources of 153.5 billion CZK (a year-on-year increase of 35.6 billion CZK), or 249.6 billion CZK when EU funds are included (a year-on-year increase of 65.0 billion CZK), and current state expenditures will increase by 70.0 billion CZK, or 3.5%.

The structure of expenditures reflects the government's priorities. Funding for education was increased in the Ministry of Education's budget by 21.9 billion CZK, including funds from the EU, which includes an increase in funding for universities of 4.0 billion CZK from national sources. Therefore, the higher education sector will receive an additional 1.0 billion CZK compared to the August budget proposal. The government has thus utilized 1.0 billion CZK, which was available as a reserve up to the maximum allowable budget deficit according to spending frameworks. Total expenditures on science, research, and innovation will increase year-on-year by 3.7 billion CZK to 51.6 billion CZK, including funds from the EU. The largest share will go to the Ministry of Education (22.9 billion CZK, an increase of 2.4 billion CZK). Budgets for the Czech Academy of Sciences, the Technology Agency of the Czech Republic, the Czech Grant Agency, and the Ministry of Health will also be increased.

State investments will primarily be directed to transport infrastructure. Capital expenditures of the Ministry of Transport will reach a total of 93.3 billion CZK, including funds from the EU (an increase of 51 billion CZK). "Currently, 42 sections of highways are under construction, and next year, construction will begin on more than 100 km, including the Prague ring road from Běchovice to D1, the D35 highway to Lipník nad Bečvou, and the Břeclav bypass. Railway corridors will also be expanded," says Minister Stanjura.

In mandatory expenditures (1796.9 billion CZK), social transfers and subsidies (social benefits, including pensions) amount to 936.8 billion CZK (an increase of 26.6 billion CZK), of which pensions account for 717.2 billion CZK (an increase of 11.0 billion CZK). Expenditures on debt service are expected to reach 100 billion CZK next year (an increase of 5 billion CZK). The legally mandated annual amount for defense spending of 2% of GDP (which is 160.8 billion CZK in 2025) is distributed across multiple budget items – in addition to 154.4 billion CZK in the Ministry of Defense's budget, defense spending is also included in the budgets of the National Security Office, the National Cyber and Security Agency, and the Ministry of Foreign Affairs.

For teachers, who are legally guaranteed 130% of the average wage, salaries have been allocated 7% higher than last year (a total of 103.5 billion CZK, an increase of 6.6 billion CZK). For other civil servants, the budget includes an increase in the amount of money for salaries of 5% (a total of 286 billion CZK, an increase of 19.4 billion CZK). However, the government must still decide whether this increase will go exclusively to the base salary or also to the additional salary, and in what proportion.

The largest budget allocations (including EU funds) continue to be for the Ministry of Labor and Social Affairs, with a budget of 968.8 billion Czech crowns (a year-on-year increase of 42.2 billion crowns due to increased mandatory expenditures mandated by law), the Ministry of Education with a budget of 290.8 billion crowns (year-on-year +21.9 billion crowns), the General Treasury with 269.1 billion crowns (a decrease of 4.5 billion crowns), the Ministry of Defense with a budget of 154.4 billion crowns (an increase of 3.2 billion crowns), and the Ministry of Transport with a budget of 139.5 billion crowns (an increase of 35.8 billion crowns).

The total revenues of the state budget are projected to reach 2086.1 billion crowns in 2025, of which social security contributions account for 809.4 billion crowns (an increase of 53.2 billion crowns year-on-year), VAT collection is expected to be 414.0 billion crowns (+27.2 billion crowns), excise tax collection is 157.0 billion crowns (-1.7 billion crowns), corporate income tax collection is 244.3 billion crowns (+29.1 billion crowns), and personal income tax collection is 184.7 billion crowns (+29.2 billion crowns). The budget also includes 153.6 billion crowns from the European Union budget and financial mechanisms.

The government will submit the draft law on the state budget for 2025 to the Chamber of Deputies by the end of September. Along with it, they will also submit an amendment to the law on the state budget for 2024. This amendment will be debated under a state of legislative urgency, which allows for shortening the deadlines between the different readings of the law. Members of parliament will begin discussing the amendment to the 2024 state budget as early as October 1, 2024.

mfcr / gnews - RoZ

PHOTO - X Office of the Government of the Czech Republic