Czech Lawmakers Approve Looser Budget Deficit Rules

The Chamber of Deputies of the Czech parliament overrode a veto by President Petr Pavel and gave final approval to a law relaxing the rules on the state budget deficit. The legislation, previously rejected by the Senate, gives Prime Minister Andrej Babis's government significantly more leeway for government spending.

The new law excludes investment in roads, railways, nuclear power plants and dams from the calculation of the budget deficit and expands exemptions for defense spending above 2% of gross domestic product (GDP). It also allows the cabinet to increase spending by up to 10% in the event of defined security threats.

The president, the opposition and the independent budget authority are warning of a fundamental weakening of fiscal discipline and a threat to long-term sustainability. Finance Minister Alena Schillerova defended the changes, arguing that the original rules required unachievable cuts, while promising to keep the deficit below the European Union's ceiling of 3% of GDP.

The opposition has already said it will take the matter to the Constitutional Court of the Czech Republic.

(Reuters, max)