The OECD forecast gross domestic product eking out a 0.1% rise this year before accelerating to 2.4% growth in 2024. "Economic growth will be subdued in 2023 and pick up in 2024 amid reduced supply disruptions and resuming expansion in trading partners," the OECD's economic survey of the country said. It said inflation will start falling from the current high levels - at 16.7% year-on-year in February - but will only approach the central bank's 2% target towards the end of 2024. This is slower than forecast by the central bank, which sees inflation at 2.3% already in the first quarter of 2024. The OECD said the country had to consolidate the budget to avoid a "dramatic" debt jump in the medium to long term. "The Czech Republic faces high fiscal pressures in the medium to long term that threaten fiscal sustainability. Action on both the expenditure and revenue sides should be considered," it said. It said fiscal rules have been relaxed, and personal income taxes were low especially after a permanent cut in 2020.
The current main centre-right party in the government
coalition had backed that tax cut and remains opposed to any
increase in income taxes.
It has, however, been considering some increase in property
taxes which have been very low relative to peers. The OECD
recommended a shift toward real estate, consumption and
environmental taxes, while reducing social security
contributions which drive up labour costs.
OECD said that taking into account early retirements, Czech
workers retire much earlier than in most OECD peers, which
aggravated pressures from a rapidly ageing population.
The government has been mulling a fiscal package including
spending cuts and some mild tax increases, as well as changes to
the pension system to help bring budgets into better shape, with
final proposals due later this spring.
(Reporting by Jan Lopatka)
