Thursday, 2 July 2026
The Czech Republic recorded a state budget deficit of CZK 183.6 billion at the end of the first half of 2026, reflecting higher public spending despite continued growth in government revenues. While the shortfall widened compared with the same period last year, economists believe the government’s full-year fiscal objective remains within reach as revenue collection is expected to strengthen during the second half of the year.
The latest figures show that the deficit increased from the level recorded at the end of May and was around CZK 31 billion larger than a year earlier. Although it represents one of the country’s larger mid-year deficits in historical terms, the result broadly reflects the seasonal pattern of Czech public finances, where expenditure is concentrated in the first half of the year while several important tax revenues are collected later.
Government income continued to expand, rising by around 4% year-on-year, supported by higher receipts from income taxes, value-added tax and social insurance contributions. Strong wage growth remained one of the main drivers of revenue, increasing both payroll tax receipts and mandatory social contributions, while resilient household spending also supported indirect tax collection.
Expenditure grew at a faster pace than revenues, increasing by more than 6% compared with the first half of 2025. Higher spending was primarily linked to pensions, healthcare, education, social programmes and transfers to the European Union budget. Interest payments on government debt also continued to rise as refinancing costs remain higher than in previous years.
A significant factor behind the larger deficit was the timing of government expenditure. Funding for education, research, social services and several public programmes was released earlier in the year after temporary spending restrictions during the first quarter came to an end. This resulted in a faster increase in expenditure during the second quarter, while many tax payments will not be received until later in the year.
Tax performance remained broadly encouraging despite changes to the allocation of tax revenues between the central government and regional authorities. After adjusting for these legislative changes and the gradual disappearance of temporary windfall tax revenues, underlying tax collection continued to show healthy growth, reflecting stable labour market conditions and moderate economic expansion.
Personal income tax receipts benefited from rising salaries, while corporate tax revenue improved as companies made advance payments linked to their financial results. Consumption also continued to support value-added tax collections, although household spending remains influenced by inflation and interest rate developments.
The budget was also supported by positive net inflows from European Union programmes. Without these transfers, the underlying fiscal deficit would have been larger, underlining the continuing importance of EU funding for investment and public expenditure.
The Czech government continues to target a full-year budget deficit of CZK 310 billion for 2026. Most economists consider this objective achievable, provided economic activity remains stable and tax revenues continue to improve during the second half of the year. However, they also note that higher debt servicing costs, mandatory social expenditure and broader economic conditions will remain important factors shaping the final budget outcome.
The mid-year figures suggest that while fiscal consolidation remains a long-term objective, public finances continue to balance the need for investment and social spending with efforts to gradually reduce budget deficits in the years ahead.
