Czechs Announce Major Pension, Tax Reform To Rein In Debt

The Czech government presented an extensive tax and pension reform on Thursday designed to curb soaring public debt due to the Covid pandemic and the war in Ukraine.

Presenting the "Czechia in Shape" programme, Prime Minister Petr Fiala said its goal was "to fundamentally reverse the trend of growing debt" and make the pension system sustainable.

"The pace of the debt growth in our country is horrific," Fiala told reporters.

The EU member of 10.5 million people was hit hard by the Covid-19 pandemic and topped the global statistics for per capita deaths for several months.

In 2019, before the pandemic hit Europe, the Czech government's debt reached 28.3 percent of gross domestic product (GDP).

Last year, it stood at 42.6 percent.

The government will cut spending in the government sector, curb subsidies, and raise the real estate tax and corporate income taxes from 2024.

It will also introduce changes to extend the pension age.

Labour and Social Affairs Minister Marian Jurecka said the retirement age would be set on the basis of life expectancy from 2025, against the current 64 years.

The average Czech should receive a pension for 21.5 years, Jurecka told reporters.

"Around 2050, we will have one working person per one pensioner, this is why the change is crucial," Jurecka said.

He added the state would also tighten the rules for early retirement.

Fiala's government will also replace the current three value added tax (VAT) rates of 10, 15 and 21 percent with two set at 12 and 21 percent, said Finance Minister Zbynek Stanjura.

Vital goods such as foodstuffs, housing and healthcare will be taxed at 12 percent against the current 15 percent.

The government also expects to raise taxes on alcohol, tobacco and gambling, and has scrapped VAT on books.

Fiala's centre-right government -- in office since late 2021 -- threw its support behind Ukraine after it was invaded by Russia in February 2022.

It has provided Ukraine with substantial military and humanitarian aid and received almost 500,000 war refugees, which also had an effect on its spending.

The economic plan has to be passed by parliament, but is expected to pass easily as the government holds a majority of 108 votes in the 200-member lower house.

Fiala's government has recently come under fire from low-income voters staging several rallies in Prague over record inflation and falling living standards.