Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Czechia
Date: 2024-06-19
Institutions: European Commission, Secretariat-General
Subjects: Czechia, budget policy, economic policy, economic recovery, economic reform, employment policy, innovation, pension scheme, social policy, stability pact

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   EUROPEAN COMMISSION  Brussels, 19.6.2024  COM(2024) 603 final  Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Czechia    {SWD(2024) 600 final} - {SWD(2024) 603 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the economic, social, employment, structural and budgetary policies of Czechia  

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Regulation (EU) 2024/1263 of the European Parliament and of the Council 
on the effective coordination of economic policies and on multilateral budgetary surveillance 
and repealing Council Regulation (EC) No 1466/971, and in particular Article 3(3) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

(2) 

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Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council2,  which 
established  the  Recovery  and  Resilience  Facility,  entered  into  force  on  19  February 
2021. The Recovery and Resilience Facility provides financial support to the Member 
States  for  the  implementation  of  reforms  and  investment,  entailing  a  fiscal  impulse 
financed by the EU. In line with the European Semester priorities it helps achieve the 
economic  and  social  recovery  and  implement  sustainable  reforms  and  investment,  in 
particular  to  promote  the  green  and  digital  transitions  and  make  the  Member  States’ 
economies  more  resilient.  It  also  helps  strengthen  public  finances  and  boost  growth 
and job creation in the medium and long term, improve territorial cohesion within the 
EU and support the continued implementation of the European Pillar of Social Rights.  
The  REPowerEU  Regulation3,  adopted  on  27  February  2023,  aims  to  phase  out  the 
EU’s  dependency  on  Russian  fossil  fuel  imports.  This  would  help  achieve  energy 

the  Recovery  and  Resilience  Facility 

OJ L 2024/1263, 30.4.2024, ELI: http://data.europa.eu/eli/reg/2024/1263/oj. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
(OJ  L  57,  18.2.2021,  p.  17),  ELI: 
establishing 
http://data.europa.eu/eli/reg/2021/241/oj 
Regulation  (EU)  2023/435  of  the  European  Parliament  and  of  the  Council  of  27  February  2023 
amending Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans 
and  amending  Regulations  (EU)  No  1303/2013,  (EU)  2021/1060  and  (EU)  2021/1755,  and  Directive 
2003/87/EC (OJ L 63, 28.2.2023, p. 1), ELI: http://data.europa.eu/eli/reg/2023/435/oj 

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(3) 

(4) 

(5) 

security  and  diversify  the  EU’s  energy  supply,  while  increasing  the  uptake  of 
renewables,  energy  storage  capacities  and  energy  efficiency.  Czechia  added  a  new 
REPowerEU chapter to its national recovery and resilience plan in order to finance key 
reforms and investments that will help achieve the REPowerEU objectives. 

On  16  March  2023,  the  Commission  issued  a  Communication  on  the  ‘Long-term 
competitiveness of the EU: looking beyond 2030’4, in order to inform policy decisions 
and  create  the  framework  conditions  for  increasing  growth.  The  Communication 
frames competitiveness along nine mutually reinforcing drivers. Among these drivers, 
access to private capital, research and innovation, education and skills, and the single 
market  emerge  as  paramount  policy  priorities  for  reform  and  investment  to  address 
current productivity challenges as well as to build up the long-term competitiveness of 
the EU and its Member  States.  On 14 February  2024, the Commission  followed this 
Communication  with  the  Annual  Single  Market  and  Competitiveness  Report5.  The 
report  details  the  competitive  strengths  and  challenges  of  Europe's  Single  Market, 
tracking yearly developments according to the nine competitiveness drivers identified.  

On 21 November 2023, the Commission adopted the 2024 Annual Sustainable Growth 
Survey6, marking the start of the 2024 cycle of the European Semester for economic 
policy  coordination.  The  European  Council  endorsed  the  priorities  of  the  survey 
around  the  four  dimensions  of  competitive  sustainability  on  22  March  2024.  On  21 
November 2023, on the basis of Regulation (EU) No 1176/2011, the Commission also 
adopted the 2024 Alert Mechanism Report, in which it did not identify Czechia as one 
of  the  Member  States  that  may  be  affected  or  may  be  at  risk  of  being  affected  by 
imbalances, and for which an in-depth review would be needed. The Commission also 
adopted a recommendation for a Council recommendation on the economic policy of 
the euro area, which the Council adopted on 12 April 2024, as well as the proposal for 
the 2024 Joint Employment Report analysing the implementation of the Employment 
Guidelines  and  the  principles  of  the  European  Pillar  of  Social  Rights,  which  the 
Council adopted on 11 March 2024.  

On  30  April  2024,  the  EU’s  new  economic  governance  framework  came  into  force. 
The  framework  includes  the  new  Regulation  of  the  European  Parliament  and  of  the 
Council  (EU)  2024/1263  on  the  effective  coordination  of  economic  policies  and 
multilateral  budgetary  surveillance  and  repealing  Council  Regulation  (EC)  No 
1466/97.  It  also  includes  the  amended  Regulation  (EC)  No  1467/97  on  the 
implementation  of  the  excessive  deficit  procedure  and  the  amended  Directive 
2011/85/EU  on  the  budgetary  frameworks  of  Member  States7.  The  objectives  of  the 
new  framework  are  public  debt  sustainability  and  sustainable  and  inclusive  growth 
through  gradual  fiscal consolidation  as  well as reforms  and investments.  It  promotes 
national  ownership  and  has  a  greater  medium-term  focus,  combined  with  more 
effective and coherent enforcement. Each Member State should submit to the Council 
and  to  the  Commission  a  national  medium-term  fiscal-structural  plan.  National 
medium-term  fiscal-structural  plans  contain  the  fiscal,  reform  and  investment 

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COM(2023) 168 final. 
COM(2024) 77 final. 
COM(2023) 901 final. 
Council  Regulation  (EU)  2024/1264  of  29  April  2024  amending  Regulation  (EC)  No  1467/97  on 
speeding  up  and  clarifying  the  implementation  of  the  excessive  deficit  procedure  (OJ  L,  2024/1264, 
30.4.2024,  ELI: http://data.europa.eu/eli/reg/2024/1264/oj)  and  Council  Directive  (EU)  2024/1265  of 
29  April  2024  amending  Directive  2011/85/EU  on  requirements  for  budgetary  frameworks  of  the 
Member States (OJ L, 2024/1265, 30.4.2024, ELI: http://data.europa.eu/eli/dir/2024/1265/oj). 

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commitments  of  a  Member  State,  covering  a  planning  horizon  of  4  years  or  5  years 
depending on the regular length of the national legislature. The net expenditure8 path 
in  the  national  medium-term  fiscal-structural  plans  should  comply  with  the 
requirements of Regulation (EU) No 2024/1263, including the requirements to put or 
keep  general  government  debt  on  a  plausibly  downward  path  by  the  end  of  the 
adjustment period at the latest, or for it to remain at prudent levels below 60% of GDP, 
and to bring and/or maintain the government deficit below the 3% of GDP reference 
value  over  the  medium  term.  Where  a  Member  State  commits  to  a  relevant  set  of 
reforms and investments in accordance with the criteria set out in Regulation (EU) No 
2024/1263, the adjustment period may be extended by 3 years at most. For the purpose 
of supporting the preparation of those plans, on [21 June] 2024, the Commission is set 
to  provide  Member  States  with  guidance  on  the  content  of  the  plans  and  the 
subsequent  annual  progress  reports  that  they  will  need  to  submit  and,  in  accordance 
with  Article  5  of  Regulation  (EU)  No  2024/1263,  will  transmit  to  them  technical 
guidance  on  the  fiscal  adjustments  (reference  trajectories  and  technical  information, 
where  applicable).  Member  States  should  submit  their  medium-term  fiscal-structural 
plans by 20 September 2024, unless the Member  State and the Commission agree to 
extend the deadline by a reasonable period of time. Member States should ensure the 
involvement  of  their  national  parliaments,  and  the  consultation  of  independent  fiscal 
institutions, of social partners and other national stakeholders, as appropriate. 

In 2024, the European Semester for economic policy coordination continues to evolve 
in  line  with  the  implementation  of  the  Recovery  and  Resilience  Facility.  The  full 
implementation  of  the  recovery  and  resilience  plans  remains  essential  for  delivering 
the policy priorities under the European Semester, as the plans help effectively address 
all  or  a  significant  subset  of  challenges  identified  in  the  relevant  country-specific 
recommendations  issued  in  recent  years.  The  2019,  2020,  2022  and  2023  country-
specific  recommendations  remain  equally  relevant  also  for  recovery  and  resilience 
plans  revised,  updated  or  amended  in  accordance  with  Articles  14,  18  and  21  of 
Regulation (EU) 2021/241.  

On  1  June  2021,  Czechia  submitted  its  national  recovery  and  resilience  plan  to  the 
Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant 
to  Article  19  of  Regulation  (EU)  2021/241,  the  Commission  assessed  the  relevance, 
effectiveness,  efficiency  and  coherence  of  the  recovery  and  resilience  plan,  in 
accordance  with  the  assessment  guidelines  of  Annex  V  to  that  Regulation.  On  8 
September 2021, the Council adopted its Decision on the approval of the assessment 
of the recovery and resilience plan for Czechia9, which was  amended on 16 October 
2023  following  Article  18(2)  of  Regulation  (EU)  2021/241  to  update  the  maximum 
financial  contribution  for  non-repayable  financial  support,  as  well  as  to  include  the 

(6) 

(7) 

8 

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Net expenditure as defined in Article 2 of Council Regulation (EU) 2024/1263 of 29 April 2024 (OJ L 
2024/1263,  30.4.2024,  ELI: http://data.europa.eu/eli/reg/2024/1263/oj).  Net  expenditure  means 
government  expenditure  net  of  (i)  interest  expenditure,  (ii)  discretionary  revenue  measures,  (iii) 
expenditure  on  programmes  of  the  Union  fully  matched  by  Union  funds  revenue,  (iv)  national 
expenditure  on  co-financing  of  programmes  funded  by  the  Union,  (v)  cyclical  elements  of 
unemployment benefit expenditure, and (vi) one-offs and other temporary measures. 
Council Implementing Decision of 8 September 2021 on the approval of the assessment of the recovery 
and resilience plan for Czechia (11047/2021). 

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(8) 

(9) 

REPowerEU chapter10. The release of instalments is conditional on a decision by the 
Commission,  taken  in  accordance  with  Article  24(5)  of  Regulation  (EU)  2021/241, 
that  Czechia  has  satisfactorily  fulfilled  the  relevant  milestones  and  targets  set  out  in 
the  Council  Implementing  Decision.  Satisfactory  fulfilment  presupposes  that  the 
achievement of preceding milestones and targets has not been reversed. 

On 24 April 2024, Czechia submitted its 2024 National Reform Programme and, on 30 
April 2024, its 2024 Convergence Programme, in line with Article 8(1) of Regulation 
(EC)  No  1466/97.  In  accordance  with  Article  27  of  Regulation  (EU)  2021/241,  the 
2024  National  Reform  Programme  also  reflects  Czechia’s  biannual  reporting  on  the 
progress made in achieving its recovery and resilience plan.  
The Commission published the 2024 country report for Czechia11 on 19 June 2024. It 
country-specific 
assessed  Czechia’s  progress 
recommendations  adopted by the Council between 2019 and 2023 and took stock of 
Czechia’s implementation of the recovery and resilience plan. Based on this analysis, 
the  country  report  identified  gaps  with  respect  to  those  challenges  that  are  not 
addressed  or  only  partially  addressed  by  the  recovery  and  resilience  plan,  as  well  as 
new and emerging challenges. It also assessed Czechia’s progress on implementing the 
European  Pillar  of  Social  Rights  and  on  achieving  the  EU  headline  targets  on 
employment, skills and poverty reduction, as well as progress in  achieving the UN’s 
Sustainable Development Goals.  

addressing 

relevant 

the 

in 

(10)  Based on data validated by Eurostat12, Czechia’s general government deficit increased 
from 3.2% of GDP in 2022 to 3.7% in 2023, while the general government debt fell 
from 44.2% of GDP at the end of 2022 to 44.0% at the end of 2023. As announced in 
the  fiscal  policy  guidance  for  202413,  the  Commission  is  taking  the  first  step  for  the 
opening of deficit-based excessive deficit procedures on the basis of the outturn data 
for  2023,  in  line  with  existing  legal  provisions.  On  19  June  2024,  the  Commission 
adopted  a  report  under  Article  126(3)  of  the  TFEU14.  That  report  assessed  the 
budgetary situation of Czechia, as its general government deficit in 2023 exceeded the 
reference  value  of  3%  of  GDP.  The  report  concluded  that  in  the  light  of  this 
assessment,  and  after  considering  the  opinion  of  the  Economic  and  Financial 
Committee  as  established  under  article  126(4)  TFEU,  the  Commission  will  not 
propose in July to open an excessive deficit procedure for Czechia.  

(11)  On  12  July  2022,  the  Council  recommended15  that  Czechia  take  action  to  ensure  in 
2023 that the growth of nationally financed primary current expenditure is in line with 
an  overall  neutral  policy  stance16,  taking  into  account  continued  temporary  and 

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14 

15 

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Council  Implementing  Decision  of  16  October  2023  amending  the  Implementing  Decision  of  8 
September  2021  on  the  approval  of  the  assessment  of  the  recovery  and  resilience  plan  for  Czechia 
(13383/2023). 
SWD(2024) 603 final. 
Eurostat-Euro Indicators, 22.4.2024. 
COM(2023) 141 final. 
Report  from  the  Commission,  prepared  in  accordance  with  Article  126(3)  of  the  Treaty  on  the 
Functioning of the European Union, 19.6.2024, COM(2024)598 final. 
Council  Recommendation  of  12  July  2022  on  the  National  Reform  Programme  of  Czechia  and 
delivering a Council opinion on the 2022 Convergence Programme of Czechia OJ C 334, 1.9.2022, p. 
19. 
Based on the Commission spring 2024 forecast, the medium-term potential output growth of Czechia in 
2023, which is used to measure the fiscal stance, is estimated at 10.5% in nominal terms, based on the 
10-year average real potential growth rate and the 2023 GDP deflator. 

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targeted support to households and firms most vulnerable to energy price hikes and to 
people  fleeing  Ukraine.  Czechia  was  recommended  to  stand  ready  to  adjust  current 
spending  to  the evolving situation. Czechia was also  recommended to  expand public 
investment  for  the  green  and  digital  transitions,  and  for  energy  security  taking  into 
account  the  REPowerEU  initiative,  including  by  making  use  of  the  Recovery  and 
Resilience  Facility  and  other  Union  funds.  In  2023,  according  to  the  Commission 
estimates, the fiscal stance17 was contractionary, by 0.9% of GDP, in a context of high 
inflation.  The  growth  in  nationally  financed  primary  current  expenditure  (net  of 
discretionary revenue measures) in 2023 provided a contractionary contribution to the 
fiscal  stance  of  0.7%  of  GDP.  This  includes  the  reduced  cost  of  the  targeted 
emergency support measures to households and firms most vulnerable to energy price 
hikes by 0.1% of GDP. This also includes lower costs to offer temporary protection to 
displaced  persons  from  Ukraine  (by  0.1%  of  GDP).  In  sum,  the  projected  growth  of 
nationally financed primary current expenditure in 2023 was in line with the Council 
recommendation.  Expenditure  financed  by  Recovery  and  Resilience  Facility  grants 
and  other  EU  funds  amounted  to  1.1%  of  GDP  in  2023.  Nationally  financed 
investment  amounted  to  4.4%  of  GDP  in  2023,  representing  an  increase  of  0.5 
percentage  points  as  compared  to  2022.  Czechia  financed  additional  investment 
through  the  Recovery  and  Resilience  Facility  and  other  EU  funds.  Czechia  financed 
public investment for the green and digital transitions, and for energy security, such as 
energy  efficiency  renovations  and  installation  of  renewables,  modernisation  and 
increased safety of railways and project preparation for electrification, flood protection 
and water retention of lands and municipalities, projects of Czech companies aiming at 
reducing  water  consumption  and  applying  circular  solutions  for  businesses,  public-
private  partnerships  in  research  and  innovation,  or  provision  of  digital  devices  for 
schools, which are partly funded by the Recovery and Resilience Facility and other EU 
funds. 

(12)  The  key  projections  in  the  2024  Convergence  Programme  can  be  summarised  as 
follows. The macroeconomic scenario underpinning the budgetary projections foresees 
real GDP growth at 1.4% in 2024 and 2.6% in 2025, while it projects HICP inflation at 
2.7%  in  2024  and  2.4%  in  2025.  The  general  government  deficit  is  expected  to 
decrease to 2.3% of GDP in 2024 and stand at 2.1% of GDP in 2025, while the general 
government  debt-to-GDP  ratio  is  set  to  increase  to  45.5%  by  the  end  of  2024  and 
46.4% by the end of 2025. After 2025, the general government deficit is projected to 
decrease gradually to 1.6% of GDP in 2026 and 1.2% in 2027. Therefore, the general 
government balance is planned to remain below the 3% of GDP deficit reference value 
over the programme horizon. In turn, after 2025, the general government debt-to-GDP 
ratio is projected to increase to 47.1% in 2026 and stabilise in 2027. 

(13)  The  Commission  Spring  2024  Forecast  projects  real  GDP  to  grow  by  1.2%  in  2024 
and 2.8% in 2025, and HICP inflation to stand at 2.5% in 2024 and 2.2% in 2025. 

17 

The fiscal stance is defined as a measure of the annual change in the underlying budgetary position of 
the  general  government.  It  aims  to  assess  the  economic  impulse  stemming  from  fiscal  policies,  both 
those  that  are  nationally  financed  and  those  that  are  financed  by  the  EU  budget.  The  fiscal  stance  is 
measured as the difference between (i) the medium-term potential growth and (ii) the change in primary 
expenditure  net  of  discretionary  revenue  measures  (and  excluding  temporary  emergency  measures 
related to the COVID-19 crisis) and including expenditure financed by non-repayable support (grants) 
from the Recovery and Resilience Facility and other Union funds. 

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(14)  The Commission Spring 2024 Forecast projects a government deficit of 2.4% of GDP 
in 2024, while the general government debt-to-GDP ratio is set to increase to 45.2% 
by the end of 2024. The decrease of the deficit in 2024 mainly reflects the withdrawal 
of measures to mitigate the impact of high energy prices, and the implementation of a 
consolidation  package.  Based  on  the  Commission’s  estimates,  the  fiscal  stance  is 
projected to be contractionary by 2.3% of GDP in 2024. 

(15)  Expenditure amounting to 0.5% of GDP is expected to be financed by non-repayable 
support  (“grants”)  from  the  Recovery  and  Resilience  Facility  in  2024,  compared  to 
0.4%  of  GDP  in  2023,  according  to  the  Commission  Spring  2024  Forecast. 
Expenditure  financed  by  Recovery  and  Resilience  Facility  grants  will  enable  high-
quality investment and productivity-enhancing reforms without a direct impact on the 
general government balance and debt of Czechia. Expenditure amounting  to 0.1% of 
GDP is expected to be backed by loans from the Recovery and Resilience Facility, in 
2024, compared with 0% of GDP in 2023, according to the Commission Spring 2024 
Forecast. 

(16)  On  14  July  2023,  the  Council  recommended18  that  Czechia  ensure  a  prudent  fiscal 
policy,  in  particular  by  limiting  the  nominal  increase  in  net  nationally  financed 
primary  expenditure19  in  2024  to  not  more  than  6.0%.  When  executing  their  2023 
budgets and preparing their budgets for 2024, Member States were invited to take into 
account  that  the  Commission  would  propose  to  the  Council  the  opening  of  deficit-
based  excessive  deficit  procedures  based  on  the  outturn  data  for  2023.  According  to 
the  Commission  Spring  2024  Forecast,  Czechia’s  net  nationally  financed  primary 
expenditure  is  projected  to  decrease  by  1.1%  in  2024,  which  is  below  the 
recommended maximum growth rate. This is in line with what was recommended by 
the Council.  

(17)  Moreover,  the  Council  recommended  that  Czechia  take  action  to  wind  down  the 
emergency energy support measures in  force, using the related savings to  reduce the 
government  deficit,  as  soon  as  possible  in  2023  and  2024.  The  Council  further 
specified  that,  should  renewed  energy  price  increases  necessitate  new  or  continued 
support  measures,  Czechia  should  ensure  that  these  were  targeted  at  protecting 
vulnerable  households  and  firms,  fiscally  affordable,  and  preserve  incentives  for 
energy savings. According to the Commission Spring 2024 Forecast, the net budgetary 
cost20 of energy support measures is estimated at 1.2% of GDP in 2023 and projected 
at -0.2% in 2024, and 0.0% in 2025. In particular, the windfall profits tax is assumed 
to remain in force in 2024 and 202521. If the related savings were used to reduce the 
government deficit, as recommended by the Council, these projections would imply a 
fiscal  adjustment  of  1.4%  of  GDP  in  2024,  whereas  net  nationally  financed  primary 

18 

19 

20 

21 

Council  Recommendation  of  14  July  2023  on  the  2023  National  Reform  Programme  of  Czechia  and 
delivering a Council opinion on the 2023 Convergence Programme of Czechia, OJ C 312, 1.9.2023, p. 
22. 
Net primary expenditure is defined as nationally financed expenditure net of  (i) discretionary revenue 
measures, (ii) interest expenditure, (iii) cyclical unemployment expenditure, and (iv) and one-offs and 
other temporary measures. 
The figure represents the level of the annual budgetary cost of those measures, including revenue and 
expenditure and, where applicable, net of the revenue from taxes on windfall profits of energy suppliers. 
Measures that, according to Czechia, remain in place until the end of 2024 are, in principle, assumed in 
the Commission Spring 2024 Forecast as having a budgetary impact also in 2025.  

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(18) 

expenditure22  provides  a  contractionary  contribution  to  the  fiscal  stance  of  2.2%  of 
GDP in that year. The emergency energy support measures are projected to be wound 
down  as  soon  as  possible  in  2023  and  2024.  This  is  in  line  with  what  was 
recommended by the Council. Moreover, the related savings are projected to be fully 
used  to  reduce  the  government  deficit.  This  is  also  in  line  with  the  Council 
recommendation. 

In addition, the Council also recommended that Czechia preserve nationally financed 
public  investment  and  ensure  the  effective  absorption  of  Recovery  and  Resilience 
Facility  grants  and  other  EU  funds,  in  particular  to  foster  the  green  and  digital 
transitions.  According  to  the  Commission  Spring  2024  Forecast,  nationally  financed 
public investment is projected to decrease to 4.2% of GDP in 2024 from 4.4% of GDP 
in 2023. This decrease is driven by the end of the 2014-2020 programming period of 
EU  structural  funds,  for  which  funds  were  available  until  2023.  Taking  into  account 
this additional factor, public investment in 2024 is assessed as respecting the Council 
recommendation. In turn, public expenditure financed from revenues from EU funds, 
including Recovery and Resilience Facility grants, is expected to decrease to 1.0% of 
GDP in  2024 from 1.1% of GDP  in  2023. This  decrease is  driven by the end of the 
2014-2020  programming  period  of  EU  structural  funds,  for  which  funds  were 
available until 2023. 

(19)  Based on policy measures known at the cut-off date of the forecast and on a no-policy-
change  assumption,  the  Commission  Spring  2024  Forecast  projects  a  government 
deficit of 1.9% of GDP in 2025. The general government debt-to-GDP ratio is set to 
increase to 45.5% by the end of 2025. The increase of the debt-to-GDP ratio in 2025 
mainly  reflects  the  negative  headline  balance,  being  partly  offset  by  nominal  GDP 
growth. 

(20)  Czechia’s  structural  budget  balance  has  decreased  from  close  to  balance  on  average 
over 2014-2019, to -2.9% in 2023. This was due to permanent measures, such as the 
personal  income  tax  cut,  and  the  increase  in  social  security  benefits,  including  the 
automatic  indexation  of  pensions  to  inflation,  which  were  not  financed  by 
corresponding revenue growth. There is additional pressure on fiscal sustainability in 
the medium to long term, due to the increase in the cost of ageing. In 2023, Czechia 
amended  the  first  pillar  of  the  pension  system,  including  reduced  indexation  of 
pensions and stricter early retirement. Still, without additional changes, an increase in 
pension  expenditure  of  around  3  percentage  points  by  2060  is  expected  due  the 
projected  doubling  of  the  old-age  dependency  ratio23,  the  capping  of  the  retirement 
age, as well as a still high number of people taking early retirement. Unless financed 
by  a  corresponding  growth  in  revenues,  the  projected  rise  in  age-related  spending 
could  increase  the  fiscal  sustainability  risks  in  the  medium  and  long  term.  The 
government proposes to link the statutory retirement age with life expectancy, and to 
slow  down  the  growth  of  newly  granted  pensions.  If  implemented,  these  changes 
would improve the fiscal sustainability of the pension system. Other possible measures 

22 

23 

This contribution is measured as the change in general government primary expenditure, net of (i) the 
incremental  budgetary  impact  of  discretionary  revenue  measures,  (ii)  one-offs,  (iii)  cyclical 
unemployment  expenditure  and  (iv)  expenditure  financed by  non-repayable  support  (grants)  from  the 
Recovery  and  Resilience  Facility  and  other  EU  funds,  relative  to  the  medium-term  (10-year)  average 
potential nominal GDP growth rate, expressed as a ratio to nominal GDP. 
According to the 2024 Ageing Report issued by the Commission in April 2024. 

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to address fiscal sustainability in the long term include increasing the labour supply by 
providing incentives to raise the participation rates of people beyond the pension age. 

(21)  Competitiveness and productivity are held back by shortages of workers. Employment 
of  mothers  could  be  increased,  as  can  be  seen  from  the  low  female  employment  for 
several years after childbirth. In addition to the lack of available childcare, the tax and 
benefit  system  dissuades  the  lower-earning  parent,  in  particular  mothers  from 
returning to work. Three-year periods of parental leave, high tax deductibles for non-
working  spouses  and  family  benefits  incentivising  the  lower-earning  parent  to  take 
long  periods  of  leave  discourage  parents,  in  particular  mothers  from  working  or 
looking for a job. The taxation of earnings from labour for second earners was above 
the EU average in 2022, and above the tax wedge for single people at the same wage 
level.  Encouraging  the  lower-earning  parent  to  work  or  look  for  a  job  would  also 
support higher revenues for the pension system. 

(22)  Czechia’s overall tax revenue in relation to GDP is considerably below the EU average 
in  2022  (35.3%  compared  to  40.2%  EU  average).  Broadening  the  tax  base  by 
expanding  the  share  of  taxes  less  detrimental  to  growth  is  an  option  to  support 
economic  growth  and  fiscal  sustainability.  Recurrent  property  taxes  are  among  the 
taxes least detrimental to growth, but the revenue from recurrent property taxation is 
very  low  at  0.2%  of  GDP  compared  to  1.0%  of  GDP  the  EU  average  (as  of  2022). 
Despite the increase in recurrent property taxes in 2024, the recurrent property taxation 
system  of  buildings  and  units  is  based  on  the  area  of  the  properties,  which  leads  to 
unequal  taxation  of  properties  of  the  same  value  and  does  not  react  to  changes  in 
property  values.  Implementing  a  property  valuation  system  which  chooses  the 
property values as the tax base, aligns property values to market values and allows for 
regular updates of property values, would increase the efficacy of the tax as a tool to 
mitigate the increases in property prices, and to put existing housing stock to its most 
productive  use.  In  turn,  this  would  raise  housing  affordability  and  people's  ability  to 
move  around  for  work,  supporting  economic  growth  and  increasing  revenue  from 
recurrent property taxes. 

(23) 

In accordance with Article 19(3), point (b), and Annex V, criterion 2.2 of Regulation 
(EU) 2021/241, the recovery and resilience plan includes an extensive set of mutually 
reinforcing reforms and investments to be implemented by 2026. These are expected 
to  help  effectively  address  all  or  a  significant  subset  of  challenges  identified  in  the 
relevant  country-specific  recommendations.  Within  this  tight  timeframe,  proceeding 
swiftly  with  the  effective  implementation  of  the  plan  including  the  REPowerEU 
chapter  is  essential  to  boost  Czechia’s  long-term  competitiveness  through  the  green 
and digital transition, while ensuring social fairness. To deliver on the commitments of 
the plan by August 2026, it is essential for Czechia to continue the implementation of 
reforms  and  to  accelerate  investments  by  addressing  emerging  delays  while 
strengthening absorption capacity. The absorption of recovery and resilience funds is 
particularly  constrained  by  limitations  of  administrative  capacity  at  some  of  the 
implementing bodies. This is particularly visible in areas that require more expertise, 
such  as  the  digital  and  green  transition.  The  systematic  involvement  of  local  and 
regional  authorities,  social  partners,  civil  society  and  other  relevant  stakeholders 
remains essential to ensure broad ownership for the successful implementation of the 
recovery and resilience plan. 

(24)  As  part  of  the  mid-term  review  of  the  cohesion  policy  funds,  in  accordance  with 
Article  18  of  Regulation  (EU)  2021/1060,  Czechia  is  required  to  review  each 
programme  by  March  2025,  taking  into  account,  among  other  things,  the  challenges 

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identified in the 2024 country-specific recommendations, as well as its national energy 
and climate plan. This  review forms  the basis for the definitive allocation of the EU 
funding  included  in  each  programme.  Czechia  has  made  progress  in  implementing 
cohesion  policy  and  the  European  Pillar  of  Social  Rights,  but  challenges  and 
significant  regional  disparities  remain.  Severozápad  and,  to  a  lesser  extent, 
Moravskoslezko are caught in a development trap. Accelerating the implementation of 
cohesion  policy  programmes  coupled  with  strengthening  administrative  capacity, 
especially in these regions, is crucial. The priorities agreed in the programmes remain 
relevant.  In  particular,  developing  the  administrative  capacity  of  regions,  improving 
partnership  between  them,  and  enhancing  their  ownership  is  needed  to  increase  the 
absorption  of  EU  funds  by  small  municipalities,  small  to  medium-sized  enterprises 
(SMEs) and local non-governmental organisations. Investments supporting sustainable 
urban  and  regional  transport  and  infrastructure  for  alternative  fuels  need  to  be 
implemented  to  accelerate  the  green  transition,  together  with  increased  use  of 
renewable  energy  sources,  as  well  as  investments  into  energy  efficiency  and  the 
circular economy. It is important to complete the planned climate adaptation actions, 
focusing  on  natural  water  retention  measures.  It  is  also  a  priority  to  step  up  the 
integration of people displaced from Ukraine under temporary protection, including on 
the labour market in line with their skills.  It  continues to be relevant to focus on the 
impact of measures related to disadvantaged groups, such as the Roma.  

In  the  context  of  the  mid-term  review,  the  potential  to  mobilise  more  private  sector 
resources,  especially  through  a  wider  use  of  financial  instruments  combined  with 
grants  merits  further  attention.  Such  innovative  instruments  can  make  use  of  more 
private  investment  especially  for  energy  efficiency,  clean  energy  solutions  and 
business  development.  The  capacities  of  the  National  Development  Bank  should  be 
used  more  effectively  to  implement  financial  instruments  in  cohesion  policy 
programmes. Taking into account Czechia’s ambition to move up from the level of a 
moderate innovator, the country could also make use of the Strategic Technologies for 
Europe  Platform  initiative  in  the  areas  of  digital  technologies  and  deep  tech 
innovation, clean and resource-efficient technologies, and biotechnologies and where 
relevant  in  line  with  the  national  smart  specialisation  strategy  to  support  the 
transformation of industry. 

(25) 

(26)  Beyond the economic and social challenges addressed by the recovery and resilience 
plan  and  other  EU  funds,  Czechia  faces  several  further  challenges  related  to  public 
administration and competitiveness. 

(27)  There is pressure being put on the attractiveness of Czechia’s public administration as 
an employer and on the abilities of the civil service to retain talent. This particularly 
holds true for expert, management and IT jobs. Amendments to the Civil Service Act 
entered  into  force  in  2023,  bringing  in  set  terms  of  office  for  senior  civil  servants, 
faster recruitment processes and wider options to attract external applicants. However, 
the fragmentation of human resource management hinders a more systemic approach 
to  talent  management.  The  size  of  the  Czech  public  administration  is  below  the  EU 
average in both expenditure and numbers employed. Still, wages are lower than in the 
private sector for comparable education levels and have declined in real terms by more 
than  10%  compared  to  2004,  further  reducing  the  civil  service’s  attractiveness. 
Strengthening  the  capacity  of  Czechia's  public  administration  to  attract,  retain  and 
develop  talent  is  crucial  for  increasing  improving  its  effectiveness  and  quality  of 
services.  

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(28)  Czechia’s public administration plays an essential role in maintaining the economy’s 
competitiveness  as  it  shapes  the  regulatory  environment  and  public  investment, 
especially in relation to the twin transitions. Czechia’s public sector performance and 
government  effectiveness  remained  stable  and  close  to  the  EU  average  in  2022. 
However, challenges persist in strategic steering and evidence-informed policymaking. 
This calls for reducing departmentalism and strengthening strategic steering capacities, 
to  improve  consistency  of  strategies,  and  their  implementation  across  policies. 
Czechia's  fragmented  local  administrative  capacity  is  a  significant  factor  preventing, 
among  other  things,  small  beneficiaries  from  drawing  on  EU  funds  efficiently.  The 
absorption by small municipalities, small and medium-sized enterprises and local non-
governmental  organisations,  would  improve  from  support  being  provided  to 
applicants,  for  example,  by  appointing  shared  project  managers  and  by  providing 
comprehensive information on how they can apply for EU funding in one place. The 
priority in this regard is developing targeted support for boosting local administrative 
capacity  in  structurally  affected  regions  such  as  Severozápad  and  Moravskoslezsko. 
The good example provided by the Just Transition Fund shows that the regions would 
be activated if they had a stronger role in determining their specific needs. 

(29)  Czechia’s innovation performance continues to be held back by ineffective technology 
and  knowledge  transfer  and  by  weak  linkages  between  academia  and  the  industrial 
sector. Public expenditure on R&D financed by businesses remains at around half of 
the EU average (0.023% of GDP, against 0.045%), and has been on a declining trend 
in  recent  years,  demonstrating  the  low  degree  of  (and  incentives  for)  academia-
business cooperation. This is weighing heavily on the transfer of research results into 
the economy and is limiting Czechia’s innovation capacity, as shown, for example, by 
limited patent applications, which remain well below the EU average (0.83 percentage 
points  per  billion  of  GDP  in  2020,  compared  to  3.4  percentage  points).  Measures  to 
structurally improve and strengthen the transfer of technology in Czechia, and aimed 
specifically  at  strengthening  the efficiency of technology  transfer and facilitating the 
creation  of  spin-offs,  could  help  tackle  this  challenge.  A  Horizon  Policy  Support 
Facility  project  starting  on  9  June  2024  is  expected  to  provide  concrete  support  and 
policy recommendations to Czechia as regards increasing science-business linkages.  

(30)  Participation  and  attainment  in  higher  education  is  decreasing,  which  aggravates  the 
shortage  of  skilled  workers.  Tertiary  educational  attainment  among  25–34-year-olds 
shows a downward trend since 2021 and is the fourth lowest in the EU (33.7% vs the 
EU average of 43.1%), far from  the EU target  of 45%. Between 2016 and 2021, the 
number of students enrolled decreased by 11.6% and the dropout rates are persistently 
high. Financial support for students is consistently low (2.5% of public expenditure vs 
the  EU  average  of  18.8%),  despite  empirical  evidence  showing  high  productivity 
returns on investment in higher education. 

(31)  Shortages of workers and skills mismatches remain a pressing challenge, hindering the 
competitiveness of the Czech economy. These could be improved by measures such as 
reform  of  regulated  professions  and  increased  involvement  of  sectoral  councils  of 
experts in addressing a long-standing lack of skilled workers. In addition, Czechia has 
received  the  EU’s  highest  inflow  per  capita  of  people  displaced  from  Ukraine  under 
temporary protection. However, more than 50% of them are in less qualified positions 
than  was  the  case  in  Ukraine,  with  language  being  reported  as  a  clear  barrier. 
Furthermore,  roughly  30%  also  claimed  that  qualification  recognition  as  a  barrier  to 
getting  a  better  job.  Simplifying  the  recognition  of  foreign  qualifications  and 
increasing the labour market participation of underrepresented groups including people 

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displaced  from  Ukraine  under  temporary  protection,  could  ease  labour  market 
tightness. 

HEREBY RECOMMENDS that Czechia take action in 2024 and 2025 to: 

1. 

2. 

3. 

4. 

Submit  the  medium-term  fiscal-structural  plan  in  a  timely  manner.  In  line  with  the 
requirements  of  the  reformed  Stability  and  Growth  Pact,  limit  the  growth  in  net 
expenditure24  in  2025 to  a rate  consistent  with  maintaining  the general  government 
deficit  below  the  3%  of  GDP  Treaty  reference  value  and  keeping  the  general 
government debt at a prudent level over the medium term. Take measures to ensure 
the  long-term  fiscal  sustainability  of  the  pension  system.  Lower  tax  and  benefit 
disincentives  for  parents  to  return  to  work  to  promote  higher  female  labour  market 
participation. Improve incentives for people close to retirement to continue working. 
Take steps to increase revenue from recurrent property taxes. 

Strengthen  administrative  capacity  to  manage  the  recovery  and  resilience  plan, 
accelerate  investments  and  maintain  momentum  in  the  implementation  of  reforms. 
Address emerging delays to allow for continued, swift and effective implementation 
of  the  recovery  and  resilience  plan,  including  the  REPowerEU  chapter,  ensuring 
completion  of  reforms  and 
the 
implementation  of  cohesion  policy  programmes.  In  the  context  of  their  mid-term 
review,  continue  focusing  on  the  agreed  priorities,  taking  action  to  better  mobilise 
private  sector  resources,  including  through  the  use  of  innovative  financial 
instruments,  while  considering 
the  Strategic 
Technologies for Europe Platform initiative to improve competitiveness. 

investments  by  August  2026.  Accelerate 

the  opportunities  provided  by 

Strengthen  the  capacity  of  Czechia's  public  administration  to  attract,  retain  and 
develop  talent,  particularly  those  with  analytical,  managerial  and  IT  skills.  Reduce 
departmentalism and strengthen strategic steering capacities to improve consistency 
across policies. Support cooperation among municipal administrations, including by 
providing  support  for  administrative  capacity  building  targeted  to  structurally 
affected regions. 

Boost  innovation  by  improving  technology  transfer  from  academia  to  businesses, 
supporting  the  creation  of  spin-offs  and  start-ups,  and  increasing  participation  in 
tertiary  education.  Strengthen  the  competitiveness  of  the  economy  by  addressing 
skills  mismatches,  simplifying  the  recognition  of  foreign  qualifications,  and  by 
increasing the labour market participation of underrepresented groups. 

Done at Brussels, 

For the Council 
The President 

24 

According  to  Article  2(2)  of  Regulation  (EU)  2024/1263,  ‘net  expenditure’  means  government 
expenditure net of interest expenditure, discretionary revenue measures, expenditure on programmes of 
the  Union  fully  matched  by  revenue  from  Union  funds,  national  expenditure  on  co-financing  of 
programmes funded by the Union, cyclical elements of unemployment benefit expenditure, and one-offs 
and other temporary measures. 

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