Finance
Czech lawmakers approve new 2026 budget with rising deficit, defence cuts
Published by Global Banking & Finance Review®
Posted on March 11, 2026
3 min readLast updated: March 11, 2026
Quick Summary
The Czech lower house has approved the 2026 budget with a higher deficit of 310 billion crowns (~$14.8 billion), increases in social and wage spending, and cuts to core defence outlays. The independent Fiscal Council criticized the plan as violating fiscal rules.
Czech Parliament Passes 2026 Budget with Higher Deficit and Reduced Defence Spending
Overview of the 2026 Czech Budget Approval
PRAGUE, March 11 (Reuters) - The Czech lower house approved on Wednesday a 2026 budget drawn up by Prime Minister Andrej Babis' new government, setting a higher 310 billion crown ($14.75 billion) deficit, as spending on wages and subsidies increases and defence outlays fall.
The budget, once signed by the president, will replace a provisional plan in place after elections last year led to legislative delays.
Fiscal Responsibility and Criticism
The country's independent budget watchdog has said the government's 2026 plan breaks fiscal responsibility laws. Babis has also faced criticism from the opposition and allies for lowering defence spending versus his predecessor's proposals.
Changes to Budget Draft
Babis' populist ANO party, after taking power in December, began re-writing the outgoing administration's 2026 budget draft, saying expenditure for some social benefits and transport infrastructure was missing.
Government Spending Priorities
The government has promised more spending - on investments, wages and energy price subsidies - and some tax cuts as it wants to boost growth after the previous centre-right government's focus on fiscal consolidation.
Deficit and Fiscal Forecasts
This year's deficit will rise from 290.7 billion crowns in 2025 and is above 286 billion crowns that had been proposed in the previous draft. The overall fiscal deficit should rise slightly to 2.2% of gross domestic product from 2.0% in 2025, according to a finance ministry forecast.
Defence Spending Criticism
DEFENCE SPENDING CRITICISM
European NATO countries are under pressure to raise defence spending amid the Ukraine-Russia war.
NATO Commitments and Czech Response
The military alliance has pledged to raise defence spending to 3.5% of GDP plus 1.5% on other defence-relevant investments over the next decade, but Babis says the Czech Republic is not heading towards that goal, focusing rather on health spending.
2026 Defence Budget Details
In the 2026 draft, core defence spending is lower than in the previous government's proposal, at below 1.8% of GDP, marginally lower than last year in relative terms, and at 2.07% including funds for road projects and strategic material reserves that the government identifies as defence but experts say may not be recognised as such by NATO.
International and Domestic Reactions
U.S. ambassador Nicholas Merrick said last week the Czech Republic could slip to the bottom of NATO's defence-spending ranks, while Czech President Petr Pavel, a former NATO official, has warned of a loss of trust from allies - but has signalled he would not veto the budget.
($1 = 21.0150 Czech crowns)
(Reporting by Jason HovetEditing by Gareth Jones)
Key Takeaways
- •Deficit rises to CZK 310 billion (~2.2 % of GDP), up from CZK 290.7 billion in 2025, exceeding previous drafts and the fiscal responsibility threshold (~CZK 237 billion) as highlighted by the Czech Fiscal Council (devdiscourse.com).
- •Core defence spending has been cut by about CZK 21 billion, pushing it to below ~1.8 % of GDP—well under NATO’s newly agreed 3.5 % + 1.5 % target—prompting warnings from U.S. Ambassador Nicholas Merrick and concerns about capability gaps (uk.finance.yahoo.com).
- •Prime Minister Babiš prioritizes social welfare and healthcare over defence, arguing fiscal constraints limit military spending, a stance opposed by President Petr Pavel and NATO-aligned critics (taipeitimes.com).
References
Frequently Asked Questions about Czech lawmakers approve new 2026 budget with rising deficit, defence cuts
1What is the approved deficit in the Czech 2026 budget?
The approved deficit in the Czech 2026 budget is 310 billion crowns, which is higher than the previous year's deficit.
2Why has Czech defence spending been reduced in the 2026 budget?
Defence spending was reduced in favor of increased spending on wages, subsidies, and other social benefits, despite criticism from NATO and domestic allies.
3How does the new Czech budget affect fiscal responsibility laws?
The independent budget watchdog states that the 2026 budget plan breaks existing fiscal responsibility laws.
4How does the Czech Republic's defence spending compare to NATO goals?
The 2026 budget sets core defence spending below 1.8% of GDP, which is below NATO targets of 3.5% of GDP for defence.
5What are the main focus areas for increased spending in the Czech 2026 budget?
The government plans more spending on investments, wages, and energy price subsidies to boost economic growth.
