EC recommends ending of excessive deficit procedure against Czech Republic

By bne IntelliNews June 2, 2014

The European Commission recommended to the EU Council of ministers to end the excessive deficit procedure (EDP) against the Czech Republic, the commission said in a statement on June 2.

The commission launched the EDP against the Czech Republic in 2009 as the country posted a budget deficit of 5.8% of economic output, which is well above the EU’s limit of 3%. But the country managed to bring down the gap to 1.5% of GDP in 2013, which was the deadline set by the Council. According to the updated version of the convergence programme, the deficit is seen expanding to 1.8% of GDP in 2014 and further to 2.3% in 2015 but it will stay within EU rules.

The EC 2014 spring forecast sees the Czech budget gap reaching 1.9% of economic output this year and 2.4% in 2015.

The EU's council of finance ministers will discuss the commission's recommendations at its meeting on June 20.

The EC also published on June 2 a series of country-specific policy recommendations for each member state. It proposed seven recommendations for the Czech Republic regarding public finances, taxation, labour market and public administration among others. 

According to the EC, the main risks to the budgetary outlook stem from high uncertainty regarding the future development of public investment and from a potential one-off expenditure related to the planned lease contract for fighter jets with an expected deficit-increasing impact of 0.5% of GDP in 2015. And while the commission expects the government to achieve its mid-term fiscal objectives, there is a risk of significant deviation from the targets as of 2015.

On taxation, the EC recommended the government to improve tax compliance, simplify the tax system and cut taxes on labour, particularly for low-income earners. The authorities should also ensure the long-term sustainability of the public pension scheme mainly by increasing the retirement age and by reviewing the pension indexation mechanism. They will also have to speed up and substantially reinforce the fight against corruption and improve the management of EU funds. 

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