Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Czechia
Date: 2025-06-04
Institutions: European Commission, Reform and Investment Task Force
Subjects: Czechia, budget policy, economic policy, economic recovery, economic reform, employment policy, energy policy, labour market, social policy, stability pact

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   EUROPEAN COMMISSION  Brussels, 4.6.2025  COM(2025) 203 final  Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Czechia {SWD(2025) 203 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 
Article 121(2) and Article 148(4) thereof, 

Having regard to Regulation (EU) 2024/1263 of the European Parliament and of the Council 
of  29 April  2024  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: 

General considerations 

(1) 

Regulation (EU) 2024/1263, which entered into force on 30 April 2024, specifies the 
objectives  of  the  economic  governance  framework,  which  aims  at  promoting  sound 
and  sustainable  public  finances  and  sustainable  and  inclusive  growth  and  resilience 
through reforms and investments, and preventing excessive government deficits. The 
Regulation  stipulates  that  the  Council  and  the  Commission  conduct  multilateral 
surveillance in the context of the European Semester in accordance with the objectives 
and requirements set out in the TFEU. The European Semester includes, in particular, 
the  formulation,  and  the  surveillance  of  the  implementation  of  country-specific 
recommendations.  The  Regulation  also  promotes  national  ownership  of  fiscal  policy 
and  emphasises  its  medium-term  focus,  combined  with  more  effective  and  coherent 
enforcement. Each Member State must submit to  the Council and the Commission  a 
national  medium-term  fiscal-structural  plan,  containing  its  fiscal,  reform  and 
investment  commitments,  over  4  or  5  years,  depending  on  the  length  of the  national 
legislative  term.  The  net  expenditure2  path  in  these  plans  has  to  comply  with  the 

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OJ L, 2024/1263, 30.4.2024, ELI: http://data.europa.eu/eli/reg/2024/1263/oj. 
Net  expenditure  as  defined  in  Article  2,  point  (2),  of  Regulation  (EU)  2024/1263:  ‘net  expenditure’ 
means government expenditure net of (i) interest expenditure; (ii) discretionary revenue measures; (iii) 
expenditure  on  programmes  of  the  Union  fully  matched  by  revenue  from  Union  funds;  (iv)  national 

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Regulation’s  requirements,  including  the  requirements  to  put  or  keep  general 
government debt on a plausibly downward path by the end of the adjustment period, or 
for it to remain at prudent levels below 60% of gross domestic product (GDP), and to 
bring  and/or  maintain  the  general  government  deficit  below  the  3%-of-GDP  Treaty 
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  the 
Regulation, the adjustment period may be extended by up to three years. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council3,  which 
established  the  Recovery  and  Resilience  Facility  (the  ‘RRF’),  entered  into  force  on 
19 February 2021.  The  RRF  provides  financial  support  to  Member  States  for 
implementing  reforms  and  investments,  delivering  a  fiscal  impulse  financed  by  the 
Union.  In  line  with  the  priorities  of  the  European  Semester  for  economic  policy 
coordination, the RRF fosters economic and social recovery while driving sustainable 
reforms and investments, in particular promoting the green and digital transitions and 
making  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 Union and support the continued implementation of the 
European Pillar of Social Rights. 
Regulation  (EU)  2023/435  of  the  European  Parliament  and  of  the  Council4  (the 
‘REPowerEU  Regulation’),  which  was  adopted  on  27 February 2023,  aims  to  phase 
out the Union’s dependence on Russian fossil-fuel imports. This helps achieve energy 
security  and  diversify  the  Union’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  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 that Regulation, the Commission assessed the relevance, effectiveness, 
efficiency  and  coherence  of  the  recovery  and  resilience  plan,  in  accordance  with  the 
assessment guidelines set out in Annex V. On 8 September 2021, the Council adopted 
its  Implementing  Decision  approving  the  assessment  of  the  recovery  and  resilience 
plan  for  Czechia5,  which  was  amended  under  Article 18(2)  on  16 October  2023  to 
update  the  maximum  financial  contribution  for  non-repayable  financial  support,  as 
well as to include the REPowerEU chapter6. The release of instalments is conditional 
on  the  adoption  of  a  decision  by  the  Commission,  in  accordance  with  Article 24(5), 
stating that Czechia has satisfactorily achieved the relevant milestones and targets set 

the  Recovery  and  Resilience  Facility 

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. 
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). 
Council Implementing Decision of 8 September 2021 on the approval of the assessment of the recovery 
and resilience plan for Czechia (ST 11047/21 INIT; ST 11047/21 ADD 1). 
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 (ST 
13383/23 INIT; ST 13383/23 ADD 1). 

(2) 

(3) 

(4) 

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(5) 

(6) 

(7) 

out in the Council Implementing Decision. Satisfactory achievement requires that the 
achievement  of  preceding  milestones  and  targets  for  the  same  reform  or  investment 
has not been reversed. 

On  21 January  2025,  the  Council,  upon  the  recommendation  of  the  Commission, 
adopted a recommendation endorsing the national medium-term fiscal-structural plan 
of Czechia7. The plan was submitted in accordance with Article 11 and Article 36(1), 
point (a), of Regulation (EU) 2024/1263, covers the period from 2025 until 2028 and 
presents a fiscal adjustment spread over four years. 

On  26 November  2024,  on  the  basis  of  Regulation  (EU)  No 1176/2011,  the 
Commission  adopted  the  2025  Alert  Mechanism Report,  in  which  it  did  not  identify 
Czechia as one of the Member States 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 and  a proposal  for the 2025 Joint  Employment 
Report,  which  analyses  the  implementation  of  the  Employment  Guidelines  and  the 
principles  of  the  European  Pillar  of  Social  Rights.  The  Council  adopted  the 
Recommendation  on the economic policy of the euro area8 on 13 May 2025 and the 
Joint Employment Report on 10 March 2025. 

On  29 January 2025,  the  Commission  published  the  Competitiveness  Compass,  a 
strategic framework that aims to boost the EU’s global competitiveness over the next 
five  years.  It  identifies  the  three  transformative  imperatives  of  sustainable  economic 
growth: (i) innovation; (ii) decarbonisation and competitiveness; and (iii) security. To 
close  the  innovation  gap,  the  EU  aims  to  foster  industrial  innovation,  support  the 
growth of start-ups through initiatives like the EU Start-up and Scale-up Strategy, and 
promote the adoption of advanced technologies like artificial intelligence and quantum 
computing.  In  pursuit  of  a  greener  economy,  the  Commission  has  outlined  a 
comprehensive Affordable Energy Action Plan and a Clean Industrial Deal, ensuring 
that  the  shift  to  clean  energy  remains  cost-effective,  competitiveness-friendly, 
particularly  for  energy-intensive  sectors,  and  is  a  driver  for  growth.  To  reduce 
excessive dependencies and increase security, the Union is committed to strengthening 
global  trade  partnerships,  diversifying  supply  chains  and  securing  access  to  critical 
raw materials and clean energy sources. These priorities are underpinned by horizontal 
enablers, namely regulatory simplification, deepening of the single market, financing 
competitiveness and a Savings and Investments Union, promotion of skills and quality 
jobs, and better coordination of EU policies. The Competitiveness Compass is aligned 
with  the  European  Semester,  ensuring  that  Member  States’  economic  policies  are 
consistent with the Commission’s strategic objectives, creating a unified approach to 
economic governance that fosters sustainable growth, innovation and resilience across 
the Union. 

(8) 

In  2025,  the  European  Semester  for  economic  policy  coordination  continues  to 
develop  alongside  the  implementation  of  the  RRF.  The  full  implementation  of  the 
recovery and resilience plans remains essential for delivering on 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 

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Council  Recommendation  of  21 January  2025  endorsing  the  medium-term  fiscal-structural  plan  of 
Czechia, OJ C/2025/666, 10.2.2025. 
Council  Recommendation  of  13  May  2025  on  the  economic  policy  of  the  euro  area  (OJ  C, 
C/2025/2782, 22.5.2025, ELI: http://data.europa.eu/eli/C/2025/2782/oj). 

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issued  in  recent  years.  These  country-specific  recommendations  remain  equally 
relevant  for  the  assessment  of  amended  recovery  and  resilience  plans  in  accordance 
with Article 21 of Regulation (EU) 2021/241. 

(9) 

The  2025  country-specific  recommendations  cover 
the  key  economic  policy 
challenges that are not sufficiently addressed by measures included in the recovery and 
resilience  plans,  taking  into  account  the  relevant  challenges  identified  in  the  2019-
2024 country-specific recommendations. 

in 

(10)  On  4 June  2025,  the  Commission  published  the  2025  country  report  for  Czechia.  It 
assessed  Czechia’s  progress 
country-specific 
recommendations  and  took  stock  of  Czechia’s  implementation  of  the  recovery  and 
resilience plan. Based on this analysis, the country report identified the most pressing 
challenges Czechia is facing. It also assessed Czechia’s progress in implementing the 
European  Pillar  of  Social  Rights  and  in  achieving  the  Union  headline  targets  on 
employment, skills and poverty reduction, as well as progress in achieving the United 
Nations Sustainable Development Goals. 

addressing 

relevant 

the 

Assessment of the Annual Progress Report 

(11)  On 21 January 2025 the Council recommended the following maximum growth rates 
of net expenditure for Czechia: 4.5% in 2025, 2.5% in 2026, 2.6% in 2027, and 2.9% 
in  2028,  which  corresponds  to  the  maximum  cumulative  growth  rates  calculated  by 
reference  to  2023  of  10.1%  in  2025,  12.9%  in  2026,  15.8%  in  2027,  and  19.2%  in 
2028. On 30 April 2025 Czechia submitted its Annual Progress Report9, on adherence 
the 
the  recommended  maximum  growth  rates  of  net  expenditure  and 
to 
implementation  of  reforms  and  investments  responding  to  the  main  challenges 
identified  in  the  European  Semester  country-specific  recommendations.  The  Annual 
Progress  Report  also  reflects  Czechia’s  biannual  reporting  on  the  progress  made  in 
achieving its recovery and resilience plan in accordance with Article 27 of Regulation 
(EU) 2021/241. 

(12)  Russia’s  war  of  aggression  against  Ukraine  and  its  repercussions  constitute  an 
existential  challenge  for  the  European  Union.  The  Commission  recommended  to 
activate  the  national  escape  clause  (NEC)  of  the  Stability  and  Growth  Pact  in  a 
coordinated  manner  to  support  the  EU  efforts  to  achieve  a  rapid  and  significant 
increase  in  defence  spending  and  this  proposal  was  welcomed  by  the  European 
Council of 6 March 2025. Following the request of Czechia on 22 May 2025, on [date] 
the Council, upon the recommendation of the Commission, adopted a recommendation 
allowing  Czechia  to  deviate  from,  and  exceed,  the  recommended  maximum  growth 
rates of net expenditure10. 

(13)  Based on data validated by Eurostat11, Czechia’s general government deficit decreased 
from 3.8% of GDP in 2023 to 2.2% in 2024, while the general government debt rose 
from 42.5% of GDP at the end of 2023 to 43.6% at the end of 2024. According to the 
Commission’s  calculations,  these  developments  correspond  to  a  net  expenditure 

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The  2025  Annual  Progress  Reports  are  available  on:  https://economy-finance.ec.europa.eu/economic-
and-fiscal-governance/stability-and-growth-pact/preventive-arm/annual-progress-reports_en 
Council  recommendation  allowing  Czechia  to  deviate  from,  and  exceed,  the  recommended  net 
expenditure  path  (Activation  of  the  national  escape  clause),  [Please  Complete:  OJ  C/2025/xxx, 
x.x.2025]. 

Eurostat-Euro Indicators, 22.4.2025. 

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growth rate of 0.0% in 2024. In the Annual Progress Report, Czechia estimates the net 
expenditure  growth  in  2024  at  2.8%.  The  Commission  estimates  that  the  net 
expenditure  growth  was  lower  than  in  the  Annual  Progress  Report.  The  difference 
between the Commission’s calculations and the estimates of national authorities is due 
to the Commission’s recording of one-off expenditure for 2023 creating a higher base 
for 2024, and the impact of discretionary revenue measures owing to methodological 
differences  between  Czechia  and  the  Commission.  Based  on  the  Commission’s 
estimates,  the  fiscal  stance12,  which  includes  both  nationally  and  EU  financed 
expenditure, was contractionary, by 2.4% of GDP, in 2024. 

(14)  According to the Annual Progress Report, the macroeconomic scenario underpinning 
the budgetary projections by Czechia expects real GDP growth at 2.0% in 2025, while 
HICP  inflation  is  projected  at  2.3%  in  2025.  The  Commission  Spring  2025  Forecast 
projects real GDP to grow by 1.9% in 2025 and 2.1% in 2026, and HICP inflation to 
stand at 2.2% in 2025 and 2.0% in 2026. 

(15) 

In the Annual Progress Report, the general government deficit is expected to remain at 
2.2%  of  GDP  in  2025,  while  the  general  government  debt-to-GDP  ratio  is  set  to 
increase  to  44.5%  by  the  end  of  2025.  These  developments  correspond  to  net 
expenditure growth of 3.3% in 2025. The Commission Spring 2025 Forecast projects a 
general government deficit of 2.3% of GDP in 2025. According to the Commission’s 
calculations,  these  developments  correspond  to  net  expenditure  growth  of  4.0%  in 
2025. These higher projections of net expenditure growth than in the Annual Progress 
Report  are  due  to  the  Commission’s  lower  forecast  of  national  co-financing  of  EU 
programmes  in  2025,  and  lower  recording  of  one-off  expenditure  in  2025  by  the 
Commission. Based on the Commission’s estimates, the fiscal stance, which includes 
both  nationally  and  EU  financed  expenditure,  is  projected  to  be  broadly  neutral  in 
2025.  The  general  government  debt-to-GDP  ratio  is  set  to  increase  to  44.5%  by  the 
end  of  2025.  The  increase  of  the  debt-to-GDP  ratio  in  2025  mainly  reflects  the 
negative headline balance, partly offset by nominal GDP growth. 

(16)  General  government  expenditure  amounting  to  0.6%  of  GDP  is  expected  to  be 
financed  by  non-repayable  support  (“grants”)  from  the  Recovery  and  Resilience 
Facility  in  2025,  compared  to  0.4%  of  GDP  in  2024,  according  to  the  Commission 
Spring 2025 Forecast. Expenditure financed by Recovery and Resilience Facility non-
repayable support enables high-quality investment and productivity-enhancing reforms 
without a direct impact on the general government balance and debt of Czechia.  

(17)  General  government  defence  expenditure  in  Czechia  amounted  to  0.9%  of  GDP  in 
2021,  1.0%  of  GDP  in  2022  and  1.2%  of  GDP  in  202313.  According  to  the 
Commission  Spring  2025  Forecast,  expenditure  on  defence  is  projected  at  1.3%  of 
GDP in both 2024 and 2025. This corresponds to an increase of 0.4 percentage points 
of  GDP  compared  to  2021.  The  period  when  the  national  escape  clause  is  activated 
(2025-2028)  allows  Czechia  to  reprioritise  government  expenditure  or  increase 

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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 including expenditure financed by non-repayable 
support (grants) from the Recovery and Resilience Facility and other Union funds. 
Eurostat, government expenditure by classification of functions of government (COFOG).  

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government revenue so that lastingly higher defence expenditure would not endanger 
fiscal sustainability in the medium term. 

(18)  According  to  the  Commission  Spring  2025  Forecast,  net  expenditure  in  Czechia  is 
projected to grow by 4.0% in 2025 and 4.0% cumulatively in 2024 and 2025. Based on 
the Commission Spring 2025 Forecast, the net expenditure growth of Czechia in 2025 
is projected to be below the recommended maximum growth rate, both annually and 
when considering 2024 and 2025 together.  

(19)  The  Annual  Progress  Report  does  not  include  budgetary  projections  beyond  2025. 
Based on policy measures known at the cut-off date of the forecast, the Commission 
Spring 2025 Forecast projects a general government deficit of 2.2% of GDP in 2026. 
These developments correspond to net expenditure growth of 4.8% in 2026. Based on 
the Commission’s estimates, the fiscal stance, which includes both nationally and EU 
financed  expenditure,  is  projected  to  be  broadly  neutral  in  2026.  The  general 
government  debt-to-GDP  ratio  is  projected  by  the  Commission  to  increase  to  45.4% 
by the end of 2026. The increase of the debt-to-GDP ratio in 2026 mainly reflects the 
negative headline balance, partly offset by nominal GDP growth. 

Key policy challenges  

(20)  The tax and benefit system puts a heavy burden on low-income earners. Low-income 
earners often receive little or no financial benefit from working due to high health and 
social contributions (not deductible) and to benefits that decrease as income rises. For 
a single worker with 50% of average earnings and without children, Czechia has one 
of the highest labour tax wedges – the gap between the net take-home pay of workers 
and their costs to employers – in the EU, and it has been rising for over 10 years. In 
Czechia, the inactivity and unemployment traps (taxation of people entering the labour 
market)  are  above  the  EU  average,  which  discourages  low-income  and  part-time 
workers  from  working.  Adjusting  labour  taxes  to  reduce  the  burden  on  low-income 
earners  would  bring  more  people  from  these  households  into  the  labour  market, 
including  from  informal  or  precarious  work  arrangements  to  formal  and  standard 
employment.  Combining  this  with  greater  use  of  underutilised  environmental  and 
property taxation instruments would make the tax system more growth friendly. 

(21)  Czechia’s  overall  tax  revenue  in  relation  to  GDP  was  considerably  below  the  EU 
average in 2023 (34% against the EU average of 39%). Increasing the share of taxes 
that are less detrimental to growth is an option to support economic growth and fiscal 
sustainability.  Recurrent  property  taxes  are  some  of  the  least  detrimental  taxes  to 
growth,  but  revenue  from  recurrent  property  taxation  is  very  low  at  0.2%  of  GDP 
(against  the  EU  average  of  0.9%  of  GDP  in  2023).  Despite  the  slight  increase  in 
recurrent  property  taxes  in  2024  and  in  the  coming  years  as  a  share  of  GDP,  the 
recurrent property taxation system of buildings and units is still based on property size, 
which  leads  to  unequal  taxation  of  properties  of  the  same  value  and  to  taxation  not 
evolving  in  line  with  property  values.  Implementing  a  property  tax  system  based  on 
property values aligned with market values would enable Czechia to regularly update 
property  values.  If  combined  with  elements  to  protect  low-income  households,  this 
would increase the efficacy of tax as a tool to mitigate increases in property prices and 
to  put  the  housing  stock  to  its  most  productive  use.  In  turn,  this  would  improve 
housing affordability and people’s ability to move around for work, thereby supporting 
economic growth and further increasing revenue from recurrent property taxes. 

(22)  Czechia’s  structural  budget  balance  has  decreased  from  close  to  balance  on  average 
over  2014-2019  to  -1.7%  in  2024.  This  was  due  to  permanent  measures  such  as  the 

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personal income tax cut and increases in pensions and defence spending, which were 
not  financed  by  corresponding  revenue  growth.  In  2023  and  2024,  Czechia  adopted 
legislative  reforms  addressing  the  long-running  country-specific  recommendation  on 
pensions. The reforms raise the statutory retirement age to 67 by 2056, slow down the 
growth of newly granted pensions, reduce the maximum duration of early retirement, 
and tighten eligibility conditions for early retirement. These measures are projected to 
increase the effective retirement age and limit the increase in public pension spending 
in  the  long  term  by  1.9  pps.  of  GDP14.  Fully  implementing  the  recently  adopted 
pension  reforms  would  help  mitigate  ageing-related  spending  pressure  and  the 
resultant risks to fiscal sustainability. 

(23)  Risks to fiscal sustainability remain. As of 2025, working pensioners are entitled to a 
discount on social insurance. Supporting employability of older workers not claiming 
retirement pension, based on a proper cost-benefit analysis of what motivates people 
close to retirement to work longer, would further decrease risks to fiscal sustainability. 

(24) 

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 
2.2  of  Annex  V  to  that  Regulation,  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, finalising the effective implementation of the recovery and resilience 
plan  including  the  REPowerEU  chapter,  is  essential  to  boost  Czechia’s  long-term 
competitiveness  through  the  green  and  digital  transitions,  while  ensuring  social 
fairness. To deliver on the commitments of the recovery and resilience plan by August 
2026,  it  is  essential  for  Czechia  to  accelerate  the  implementation  of  reforms  and 
investments  by  addressing  relevant  challenges.  The  absorption  of  recovery  and 
resilience funds is particularly constrained by limited administrative capacity at some 
of  the  implementing  bodies.  This  is  particularly  visible  in  areas  that  require  more 
expertise,  such  as  the  green  and  digital  transitions.  Absorption  is  also  limited  by  the 
low  and  ineffective  use  of  financial  instruments  along  with  insufficiently  targeted 
grant  support.  The  systematic  involvement  of  local  and  regional  authorities,  social 
partners,  civil  society  and  other  relevant  stakeholders  remains  essential  in  order  to 
ensure  broad  ownership  for  the  successful  implementation  of  the  recovery  and 
resilience plan. 

(25)  The implementation  of cohesion  policy programmes, which encompass support from 
the  European  Regional  Development  Fund  (ERDF),  the  Just  Transition  Fund  (JTF), 
the European Social Fund Plus (ESF+) and the Cohesion Fund (CF), has accelerated in 
Czechia. It is important to continue efforts to ensure the swift implementation of these 
programmes, while maximising their impact on the ground. Czechia is already taking 
action under its cohesion policy programmes to boost competitiveness and growth. At 
the  same  time,  Czechia  continues  to  face  challenges,  including  those  relating  to 
boosting  its  innovation  potential,  including  by  investing  in  critical  technologies  and 
increasing  pressures  in  the  area  of  housing  and  skills  shortages  and  mismatches.  In 
accordance  with  Article  18  of  Regulation  (EU)  2021/1060,  Czechia  is  required  –  as 
part of the mid-term review of the cohesion policy funds – to review each programme 
taking into account, among other things, the challenges identified in the 2024 country-

14 

https://economy-finance.ec.europa.eu/publications/2024-ageing-report-economic-and-budgetary-
projections-eu-member-states-2022-2070_en. 

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specific  recommendations.  The  Commission  proposals  adopted  on  1  April  202515 
extend  the  deadline  for  submitting  an  assessment  –  for  each  programme  –  of  the 
outcome of the mid-term review beyond 31 March 2025. It also provides flexibilities 
to  help  speed  up  programme  implementation  and  incentives  for  Member  States  to 
allocate cohesion policy resources to five strategic priority areas of the Union, namely 
competitiveness  in  strategic  technologies,  defence,  housing,  water  resilience  and 
energy transition. 

(26)  The  Strategic  Technologies  for  Europe  Platform  (STEP)  provides  the  opportunity  to 
invest in a key EU strategic priority by strengthening the EU’s competitiveness. STEP 
is channelled through 11 existing EU funds. Member States can also contribute to the 
InvestEU  Programme  supporting  investments  in  priority  areas.  Czechia  could  use 
these initiatives to support the development or manufacturing of critical technologies, 
including clean and resource-efficient technologies. 

(27)  Beyond the economic and social challenges addressed by the recovery and resilience 
plan  and  other  EU  funds,  Czechia  faces  several  additional  challenges  related  to 
decarbonisation, public administration, business environment and skills and education. 

(28)  Czechia has started substantial civil service reforms to improve the functioning of its 
civil  service,  including  amendments  to  the  Civil  Service  Acts,  both  on  national  and 
regional  level,  which  brought  in  term  limits  for  senior  posts  and  more  flexible 
recruitment.  However,  systemic  challenges  persist  in  attracting,  retaining  and 
developing  skilled  professionals,  particularly  in  expert,  managerial  and  digital  roles. 
Fragmented human resource management and comparatively low public-sector wages 
undermine  the  competitiveness  of  the  public  administration  as  an  employer.  The 
potential  impact  of  reforms  has  not  been  adequately  monitored  and  it  is  difficult  to 
track  progress  due  to  limited  data.  Strengthening  the  capacity  of  Czechia’s  public 
administration  to  attract,  retain  and  develop  talent  is  crucial  to  increase  the 
effectiveness and quality of services, and in turn boost competitiveness and economic 
development. 

(29)  Although  public-sector  performance  has  remained  relatively  stable,  gaps  in  strategic 
planning,  cross-departmental  coordination  and  evidence-informed  policymaking 
continue to affect the quality and coherence of policies. The lack of a comprehensive 
framework for long-term investment planning undermines policy implementation and 
impact.  Strengthening  strategic  steering  and  reducing  departmental  silos  would 
improve policy consistency and delivery. 

(30)  As  set  in  the  Competitiveness  Compass,  all  the  EU,  national,  and  local  institutions 
must  make  a  major  effort  to  produce  simpler  rules  and  to  accelerate  the  speed  of 
administrative  procedures.  The  Commission  has  set  ambitious  goals  for  reducing 
administrative burden: by at least 25% and by at least 35% for SMEs; and has created 
new  tools  to  achieve  these  goals,  including  systematic  stress  test  of  the  stock  of  EU 
legislation and enhanced stakeholders’ dialogue. To match this ambition, Czechia also 
needs  to  take  action.  72%  of  businesses  consider  the  complexity  of  administrative 
procedures to be a problem for their company when doing business in Czechia16. 

15 

16 

Proposal  for  a  REGULATION  OF  THE  EUROPEAN  PARLIAMENT  AND  OF  THE  COUNCIL 
amending  Regulations  (EU)  2021/1058  and  (EU)  2021/1056  as  regards  specific  measures  to  address 
strategic challenges in the context of the mid-term review - COM(2025) 123 final. 
‘Businesses' attitudes towards corruption in the EU’ Flash Report, Eurobarometer Report (April 2024) 

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(31)  Challenges  remain 

in 

the 

terms  of 

implementation  capacity  of 

the  public 
administration.  Processes  such  as  spatial  planning  remain  complex  and  slow, 
becoming  a  major  constraint  on  the  business  environment,  competitiveness  and 
economic  development.  These  are  the  main  reasons  for  Czechia  having  the  seventh 
smallest construction area per person of issued permits in the EU in 2023. They hold 
back  businesses  by  slowing  down  and  raising  the  cost  of  commercial  development, 
slowing  down  the  roll-out  of  high-speed  digital  infrastructure,  raising  the  cost  of 
energy  due  to  slow  modernisation  of  the  energy  infrastructure,  and  reducing  the 
mobility of labour due to the inadequate supply of affordable housing. Affordability of 
housing  is  further  aggravated  by  sub-optimal  tax  incentives,  which  fail  to  encourage 
land  use,  subsidise  housing  purchases  rather  than  construction,  and  prioritise  short-
term rents over long-term rents. Spatial planning rules are particularly burdensome in 
large cities, where it can take over a decade to update an urban plan. Reform is needed 
to accelerate the process, especially by adjusting the competencies and differentiating 
planning requirements between small and large  areas of construction. Such measures 
could  significantly improve efficiency  and responsiveness  in  urban development.  On 
permitting,  although  progress  has  been  made  on  the  legal  framework  and,  to  some 
extent,  on  digitalisation,  positive  impacts  are  not  yet  visible  on  the  ground.  Further 
improving  digitalisation  and  the  capacity  and  management  of  construction  offices 
could help accelerate the process. 

(32)  Czechia’s 

is  a  significant  challenge 

fragmented  municipal  governance 

to 
competitiveness  as  it  limits  administrative  efficiency  and  the  effective  use  of  EU 
funding,  especially  by  small  municipalities  and  local  stakeholders.  Although  a  new 
legal framework for communities of municipalities has some scope to provide shared 
services  and  staff,  uptake  has  been  very  limited.  Strengthening  inter-municipal 
cooperation,  professionalising  procurement  practices  and  providing  more  support  to 
beneficiaries (through project managers, joint service platforms and guidance) would 
increase  the  capacity  and  effectiveness  of  local  administration  and  boost  regional 
cohesion. 

(33)  Czechia  has  untapped  potential  to  boost  competitiveness,  not  least  in  structurally 
affected  regions.  Losses  in  competitiveness  have  been  particularly  visible  in 
structurally  affected  regions  (Karlovarský,  Ústecký  and  Moravskoslezský  regions), 
manifested  in  net  outflows  of  young  people.  There  is  a  lack  of  effective  support  to 
build up the administrative capacity of these regions. 

(34)  Czech  households  have  a  higher  savings  rate  than  the  EU  average,  with  cash  and 
deposits accounting for 42.7% of household assets, above the EU average. Mobilising 
these  assets  to  fund  through  the  capital  markets  the  much-needed  process  of 
decarbonisation  and  the  digitalisation  of  the  economy  could  unlock  additional 
financing to businesses whose main sources of funding are internal firm financing and 
bank lending. Increasing the current share (of 6.6%) of listed shares and bonds in the 
mix of business  funding  sources  could  significantly boost Czechia’s competitiveness 
and reduce the impact of inflation of household savings. 

(35)  Leveraging  public  funding  remains  key  to  mobilise  private  finance  to  support 
competitiveness. Czechia still has a low rate of take-up of financial instruments, such 
as revolving ones supported from the Cohesion Funds (2.36% against the EU average 
of  9%).  In  addition,  experience  with  implementing  financial  instruments  under  the 
RRF  revealed  there  is  significant  room  to  improve  and  expand  the  use  of  these 
instruments  to  incentivise  private  investment  in  the  Czech  economy  and  support  the 
transition  away  from  grant  support.  However,  the  National  Development  Bank 

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continues to operate below its full potential with limited firepower compared to its EU 
the  National 
peers  and 
Development Bank would help unlock its potential to address market failures and lack 
of risk capital to boost innovation, without crowding out private financial institutions. 

insufficient  administrative  capacity.  Strengthening 

(36)  Support for the business spin-off and start-up ecosystem, including business creation, 
scale-up  and  expansion,  remains  pivotal  to  accelerate  growth  and  innovation. 
Challenges to start-ups persist as they experience difficulties in securing financing, a 
shortage of skilled workers and complex bureaucracy. Czech businesses  still cite  the 
complexity of administrative processes as a significant barrier to doing business (72% 
against  the  EU  average  of  66%),  including  start-ups  that  do  not  use  employee  stock 
option plans because the framework does not reflect the real needs of businesses. To 
improve  the  attractiveness  and  competitiveness  of  innovative  Czech  businesses,  it 
would  be  helpful  to  increase  support  for  start-ups  and  spin-offs  by  unlocking 
financing, strengthen their attractiveness to skilled workers and reduce administrative 
burden, in particular by optimising the framework governing employee stock options. 

(37)  Czechia’s innovation performance continues to be held back by ineffective transfer of 
technology and knowledge and by weak links between academia and business. Public 
spending on research and development financed by businesses is still only around half 
of  the  EU  average  (0.024%  of  GDP,  against  the  EU  average  of  0.050%),  and  has 
recently been falling, demonstrating the low degree of, and incentives for, cooperation 
between academia and business. This weighs heavily on the transfer of research results 
into  the  economy  and  limits  Czechia’s  innovation  capacity.  This  is  shown,  for 
example,  by  the  low  rate  of  patent  applications,  below  the  EU  average  (patent 
applications filed under the Patent Cooperation Treaty totalled 0.7 per billion euro of 
GDP  in  2022  versus  the  EU  average  of  2.8).  Measures  to  structurally  improve  and 
strengthen  technology  transfer  in  Czechia,  aimed  specifically  at  making  technology 
transfer more effective and facilitating the creation of spin-offs, could help tackle this 
challenge. 

(38)  There is room to improve how public support for innovative companies is organised. 
Only  a  third  of  companies  that  are  consistently  engaged  in  R&D  use  indirect  public 
support in the form of R&D tax incentives, and even fewer small and young firms use 
the  incentives.  Action  to  improve  this  should  be  combined  with  action  to  make  the 
R&D tax deduction more attractive for companies and to cut red tape. 

(39)  Since the start of the Russian invasion of Ukraine, Czechia has tackled its substantial 
reliance on fossil-fuel imports from Russia by diversifying its supplies of natural gas. 
Nonetheless, Czechia remains highly dependent on imported fossil fuels, with coal, oil 
and  gas  making  up  28.7%,  25%  and  15%  respectively  of  its  energy  mix  in  2023.  In 
addition,  the  transport  sector  accounts  for  the  largest  share  of  final  energy 
consumption  (30.9%  of  the  total),  followed  by  energy  consumed  by  households 
(28.2%) and by industry (26.2%). The country's  significant degree of dependence on 
these  fuels  leaves  it  exposed  to  price  spikes,  with  considerable  negative  effects  for 
households and energy-intensive industry. To reduce dependence on fossil fuels, it is 
crucial to accelerate the roll-out of renewables, with a particular focus on large-scale 
renewables.  Accelerating  investments  in  the  decarbonisation  of  the  heating  and 
industrial sectors is another key element. 

(40)  Czechia has been reforming its legislative framework for governing the deployment of 
renewable energy sources, but further incentives and substantial investment are needed 
in  order  to  bring  stability  and  predictability  to  the  market.  This  would  also  attract 

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further  private  investment  in  renewables.  Renewable  energy  power  auctions  and  the 
use  of  power  purchase  agreements  are  still  very  limited  in  Czechia,  with  the  first 
corporate  agreement  concluded  in  2021.  Launching  power  auctions  and  developing 
long-term contracts could enable the growth of larger scale renewable energy projects 
beyond traditional support schemes and also create opportunities for energy-intensive 
industries to decarbonise. 

(41)  The  limited  capacity  of  Czechia’s  distribution  grid  network  and  the  need  to  upgrade 
the grid continue to hamper the swift deployment and pace of investment in renewable 
energy  sources.  Although  Czechia  has  recently  adopted  reforms  aiming  to  shorten 
connection  queues  and  increase  transparency,  investment  remain  below  the  level 
needed  to  accommodate  the  connection  of  new  renewable  energy  sources,  increased 
electrification,  the  development  of  sustainable  mobility  and  the  level  needed  to 
improve  fossil-free  flexibility  services,  such  as  energy  storage  systems  and  the 
development of smart metres. The Electricity Data Centre has initiated operations for 
energy  sharing.  The  final  phase,  which  enables  the  provision  of  flexibility  services, 
however, faces implementation delays. 

(42)  Czechia’s  energy  intensity  is  one  of  the  highest  in  the  EU,  which  means  it  would 
benefit  from  increasing  energy  savings  by  targeting  deep  renovations.  Despite  the 
current  renovation  support  programmes,  the  final  energy  consumption  of  buildings 
remains high, especially in public buildings. This is in part due to the high electricity-
to-gas price ratio, which encourages the use of gas for heating and disincentivises the 
switch to heat pumps and electrification. Stepping up action to decarbonise the heating 
sector  and  provide  support  to  renewable  heating  and  cooling  would  encourage  the 
production of clean technologies in Czechia (e.g. heat pumps). The use of innovative 
financial instruments, such as energy performance contracts, could accelerate the slow 
rate  of  renovation  of  public  buildings  and  underpin  action  by  Czechia  to  achieve  its 
2030 target to reduce building energy consumption by 8% compared to 2020 levels. 

(43)  Competitiveness and productivity are curbed by a shortage of workers. Czechia could 
increase the rate of employment of women with young children, given the low rate of 
women employed several years after childbirth. The tax and benefit system dissuades 
low-earning  parents,  in  particular  mothers,  from  going  back  to  work.  High  tax 
deductibles  for  non-working  spouses  and  family  benefits  incentivising  the  parent 
earning less to take long periods of leave and discourage parents, in particular mothers, 
from working or looking for a job. Taxation on earnings for second earners was above 
the EU average in 2023, 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 bring 
in more revenue to support the social security funds and public finances overall. 

(44)  The  share  of  women,  especially  those  with  young  children,  on  the  labour  market  is 
also  constrained  by  a  lack  of  early  childhood  education  and  care  and  long-term  care 
services.  Parents  of  children  under  four  face  difficulties  finding  childcare  and,  as  a 
result,  the  parent  earning  less  is  disincentivised  from  working.  The  gender 
employment gap for women between 25 and 34 was 36.1 pps. in 2024 (against an EU 
average  of  25.2  pps.),  corresponding  to  almost  67 000  fewer  women  in  work  than  if 
Czechia had the EU average gender employment gap. 

(45)  Shortages of workers and skills mismatches remain a pressing challenge, hindering the 
competitiveness of the Czech economy. These challenges could be improved by easing 
transitions  between  jobs,  including  measures  such  as  increasing  the  affordability  of 
housing or reforming regulated professions to reduce the high barriers to professional 

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certification. In addition, Czechia has received the EU’s highest inflow per person of 
people  displaced  from  Ukraine  under  temporary  protection.  Over  50%  of  displaced 
Ukrainians  are  working  in  less  qualified  positions  than  they  did  in  Ukraine,  with 
language  reported  to  be  a  clear  barrier.  Furthermore,  roughly  30%  cite  qualification 
recognition as a barrier to getting a better job. Simplifying the process of recognising 
labour  market  participation  of 
foreign  qualifications  and 
underrepresented  groups,  including  people  displaced  from  Ukraine  under  temporary 
protection and Roma, could ease labour market tightness. 

increasing 

the 

(46)  Higher  education  participation  and  attainment  is  decreasing,  which  exacerbates  the 
shortage  of  skilled  workers.  Tertiary  educational  attainment  among  25-34-year-olds 
has  been  falling  since  2021  and  is  the  fourth  lowest  in  the  EU  (33.5%  vs  the  EU 
average  of  44.2%),  far  from  the  EU  target  of  45%.  Between  2016  and  2021,  the 
number of students enrolled fell by 11.6% and dropout rates remain persistently high. 

(47)  High dropout rates, particularly in science, technology, engineering, and mathematics 
(STEM)  fields,  and  declining  enrolment  in  STEM  programmes  since  2017  illustrate 
systemic challenges. In 2022, only 11.9 women out of a thousand people aged 20-29 
graduated in STEM fields, below the EU average of 15.1. The lack of sufficient career 
guidance and financial support to students are among the drivers of high dropout rates 
at Czech higher education institutions. 

(48)  Czechia has a shortage of general secondary schools and limited scope for students to 
move  between  general  and  specialised  education  pathways,  limiting  their  options  to 
successfully pursue tertiary education. Although student interest in tertiary educational 
attainment  has  strongly  increased  over  the  last  30  years,  the  number  of  general 
secondary schools has not kept pace with demand. The shortage of general secondary 
schools  pushes  students  to  enrol  in  less  competitive  vocational  schools,  leading  to 
early specialisation. Although two thirds of people who complete vocational education 
and training (VET) enrol  in  tertiary education, their success  rates  are  below those of 
students  in  general  tracks,  which  contributes  to  consistently  low  tertiary  educational 
attainment.  To  address  these  challenges,  Czechia  has  recently  announced  steps  to 
create new pathways that combine general and professional subjects and is seeking to 
modernise  VET  programmes  to  bring  them  into  line  with  the  needs  of  the  labour 
market.  To  better  prepare  students  who  have  completed  secondary  education  for  the 
labour market and support their transition to tertiary education, further improvements 
could focus on (i) expanding work-based learning opportunities, (ii) easing school-to-
work transitions, (iii) improving the scope for students to move between general and 
vocational  secondary  education,  (iv)  increasing  the  capacity  of  general  secondary 
schools and (v) diversifying and expanding access to tertiary education. 

HEREBY RECOMMENDS that Czechia take action in 2025 and 2026 to: 

1. 

2. 

Reinforce overall defence spending and readiness in line with the European Council 
conclusions  of  6 March  2025.  Adhere  to  the  maximum  growth  rates  of  net 
expenditure recommended by the Council on 21 January 2025, while making use of 
the  allowance  under  the  national  escape  clause  for  higher  defence  expenditure. 
Reduce  the  tax  burden  on  low-income  workers.  Increase  revenue  from  recurrent 
property  taxes.  Improve  the  incentives  for  people  close  to  retirement  to  continue 
working.  

In  view  of  the  applicable  deadlines  for  the  timely  completion  of  reforms  and 
investments  under  Regulation  (EU)  2021/241,  accelerate  the  implementation  of  the 
recovery  and  resilience  plan,  including  the  REPowerEU  chapter.  Accelerate  the 

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3. 

4. 

5. 

6. 

implementation  of  cohesion  policy  programmes  (ERDF,  JTF,  ESF+,  CF),  building, 
where  appropriate,  on  the  opportunities  offered  by  the  mid-term  review.  Make 
optimal use of EU instruments, including the scope provided by the InvestEU and the 
Strategic Technologies for Europe Platform, to improve competitiveness.  

Strengthen  the  capacity  of  Czechia’s  public  administration  to  attract,  retain  and 
develop talent, particularly to attract people with analytical, managerial and IT skills. 
Strengthen  strategic  steering  capacities  to  improve  consistency  across  policies. 
Simplify  urban  planning  and  reduce  administrative  burden  by 
improving 
digitalisation, capacity and  the management of construction offices. Incentivise and 
simplify  cooperation  among  municipal  administrations.  Provide  support  for 
administrative  capacity  building  and  target  this  support  to  structurally  affected 
regions. 

Strengthen  capital  markets,  business  access  to  non-bank  finance  and  the  conditions 
for saving, investment and innovation by promoting household investments in capital 
markets  and  by  improving  existing  long-term  savings  products’  effectiveness  in 
mobilising new long-term investments. Encourage institutional investor participation 
in  listed and unlisted shares,  as well as venture  capital  and private equity.  Increase 
the  use  of  financial  instruments,  including  by  strengthening  the  capacity  of  the 
National  Development  Bank  to  mobilise  private  funding  to  boost  competitiveness 
and the decarbonisation of the economy. Support the creation of start-ups and spin-
offs,  for  example  by  improving  legislation  on  employee  stock  option  plans.  Boost 
innovation, including by facilitating technology transfer from academia to business. 
Better  tap  the  potential  of  R&D  tax  benefits  to  stimulate  innovation  in  the  private 
sector. 

Reduce  reliance  on  fossil  fuels,  notably  for  road  transport,  heating  and  power 
generation. Provide further incentives for the roll-out of large-scale renewable energy 
capacity, notably by running renewable power auctions and by promoting the use of 
long-term  power  purchase  agreements.  Increase  investment  in  electricity  grids  to 
enhance fossil-free flexibility and enable the electrification of transport and industrial 
processes.  Ensure  the  swift  implementation  of  the  full  functionalities  of  the 
Electricity  Data  Centre.  Enact  measures  to  reduce  energy  consumption  and  the 
carbon intensity of the buildings sector, especially of the public building stock. 

Lower the tax and benefit disincentives for parents to return to work and improve the 
supply of childcare and care services to encourage more women to enter the labour 
market. Strengthen the competitiveness of the economy and reduce labour shortages 
by addressing skills mismatches, simplifying the recognition of foreign qualifications 
and  increasing  the  labour  market  participation  of  underrepresented  groups.  Boost 
educational  outcomes  by  increasing  participation  in  tertiary  education,  reducing 
dropout  rates  and  providing  more  student  support.  Increase  the  number  of  students 
and  graduates  in  science,  technology,  engineering  and  mathematics,  especially 
women. Expand access to general secondary education, enable students to transition 
between  general  and  vocational  education,  and  provide  more  support  for 
disadvantaged schools and pupils, including Roma. 

Done at Brussels, 

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For the Council 
The President 

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