On 3 July 2026, the Council of the European Union published a recommendation outlining specific economic, social, employment, structural and budgetary policies for Czechia. The recommendation sets binding net expenditure growth limits and urges reforms in pensions, public administration, housing, and spatial planning to enhance competitiveness and fiscal sustainability.
The Council recommends that Czechia respect maximum net expenditure growth rates of 4.5% in 2025, 2.5% in 2026, 2.6% in 2027, and 2.9% in 2028, with cumulative growth from a 2023 base year reaching 10.1% by 2025, 12.9% by 2026, 15.8% by 2027, and 19.2% by 2028. On 8 July 2025, the Council had allowed Czechia to deviate from these rates due to increased defence spending under the national escape clause, which remains active from 2025 to 2028. Czechia's general government deficit is projected at 2.8% of GDP in 2026 and 2.9% in 2027, while debt-to-GDP is forecast at 45.8% and 47.2% respectively. Defence expenditure stood at 1.2% of GDP in 2025 and is projected to remain at that level in 2026.
The recommendation notes that Czechia's net expenditure grew 4.9% in 2025, exceeding the recommended rate by 0.2% of GDP, but cumulative growth for 2024-2025 remained below the maximum. For 2026, projected net expenditure growth of 6.4% is 1.5% of GDP above the recommended rate, though cumulative 2024-2026 growth stays within limits under the national escape clause flexibility. Czechia adopted pension reforms in 2024, but risks persist; the government has proposed increasing pension indexation to half of real wage growth and raising the earnings-related component for working pensioners. The Council also highlights challenges in public administration, where salaries in Prague are 46% lower than in the private sector for managerial, IT, and expert roles, and over 40% of top-level management is replaced after each government change. Fragmented municipal governance, slow spatial planning and permitting, and declining housing affordability—with house price-to-income ratio growing at the third-highest pace in the EU—are additional concerns.
Czech taxpayers and businesses face continued fiscal consolidation, with net expenditure limits constraining public investment and services. The pension reform proposals could improve long-term fiscal sustainability but may reduce benefits for future retirees. Public administration reforms could boost efficiency and attract skilled staff, but frequent management turnover may hinder implementation. The housing affordability crisis pressures households, while slow permitting affects construction and real estate sectors. The defence escape clause provides some fiscal room for military spending, benefiting the defence industry.
Czechia is expected to report on progress in its upcoming national reform programme and stability programme. The Council will review compliance with the expenditure limits and may issue further recommendations if deviations persist.