Czech Prime Minister Andrej Babis’s minority government won approval on Friday for the 2021 budget after agreeing to a demand from the Communist Party to cut the NATO alliance member’s defence budget.
The budget plans a 320 billion crown ($15 billion) deficit although that will likely rise once lawmakers approve a planned record tax cut costing public finances around 100 billion crowns on state and regional levels.
The tax cut is around 1.7% of gross domestic product which will be on top of a government plan for an overall fiscal gap of 4.9% next year – together roughly in line with this year’s expected result. Public sector debt is seen rising to 42.7% of GDP in 2021, still far below the European Union average.
The government faced a possible defeat due to a row with the Communist Party, which props up the cabinet, over a planned 10 billion crown increase in defence spending to 85 billion.
The two government parties – Babis’s ANO movement and the Social Democrats – agreed to shift the money into reserves on Friday.
This angered opposition politicians for potentially harming relations with allies and for bowing to a demand from the Communist party which opposes the trans-Atlantic NATO military alliance.
The Communists have said the money should go to fighting the coronavirus pandemic.
However, Babis said the shift would be temporary and promised the army would not lose the money.
The Czech army has seen increases in funding as it seeks to replace outdated Soviet-era machinery. Before the cut, defence spending was to reach 1.4% of GDP next year, below a NATO target of 2%.
Failure to approve the budget by the end of the year would have meant reverting to a provisional plan that limits spending.
The 2020 deficit was raised more than 12-fold this year to 500 billion crowns due to the pandemic, but is expected to end below that.