NRR: Lower valorization means a reduction of expenses by 250 billion CZK by 2030

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Prague – By 2030, the proposed reduction in the extraordinary valorization of pensions would mean a reduction in the growth of expenses by a total of approximately 250 billion crowns, or about 0.36 percent of the gross domestic product (GDP) annually. The resulting form of the addition will thus affect the state's budgets and debts for the coming years. This was stated by the National Budget Council (NRR) in its latest opinion on fiscal and budgetary policy. About 595 billion crowns went to pensions last year. This year it could be roughly 100 billion more. However, the deficit of the pension insurance system can be almost as high. The government's amendment with the reduction of valorization was adopted by the Parliament, and the President received it for signature. According to the opposition, the proposal and the way it is discussed may be unconstitutional.

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“In absolute terms, the reduction of extraordinary valorization discussed by the Parliament of the Czech Republic means a reduction of public budget expenditures by roughly 250 billion crowns between 2023 and 2030, and in relative terms by roughly 0.36 percent of GDP each year,” the council said.

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According to the NRR, a risk for the growth of the deficit is also a reduced valorization, not only the original one. The added amount becomes part of the pension and regularly increases with it every time it is increased. Thus, expenses continue to rise. The resulting form of the June addition will therefore significantly affect the state of the budget in the following years as well, NRR pointed out.

According to the government's proposal, the average old-age pension in June should not increase by 1,770 crowns, but by 760 crowns. The percentage of merit would increase by 2.3 percent instead of 11.5 percent, and on top of that by 400 crowns. The increase would thus cost 15.4 billion crowns this year instead of 34.4 billion crowns.

According to Finance Minister Zbyňek Stanjura (ODS), the debate is limited to reducing this year's expenses, i.e. to 19 billion crowns. The head of the department in the Senate stated that according to the calculation of the Ministry of Finance, the difference between the current and the proposed valorization by 2030 could amount to a total of 342 billion crowns, of which 291 billion for pensions and 50.5 billion for interest on the debt. “Future generations would have to pay this amount,” Stanjura pointed out.

According to the opposition movements ANO and SPD, the restrictions on the June valuation and the discussion procedure are unconstitutional. ANO politicians want to convince President Petr Pavel of this on Wednesday. According to Alena Schillerová, head of ANO deputies, they want to negotiate with the coalition to change the valuations only from next year. ANO Senator Věra Procházková said during the discussion of the amendment that “the pension balance is not a threat to the collapse of the system” and the government can secure the money in other ways.

Since 2000, income from pension contributions has exceeded pension expenditure only six times, in 2004, 2005, 2007, 2008, 2018 and 2019. The best situation was at the peak of the economy in 2018, when the amount collected exceeded the amount paid out by 18, 64 billion. So far, the biggest deficit was during the end of the crisis in 2013, namely 55.1 billion crowns. For this year, according to the approved budget, the deficit is to be 62.5 billion crowns, without taking into account the extraordinary valorization. With it, the drop with limited additions would reach around 78 billion, and without changing the rules to around 97 billion crowns. Either almost 694 billion or almost 713 billion crowns could go to pensions this year. The sum for pensions could increase by more than 100 billion crowns year-on-year. With the limited June addition, spending would grow by almost 17 percent compared to last year, and almost a fifth without the reduction. They have almost doubled from 2015 to this year.

Revenues, expenses and balance of the pension insurance system in individual years in billions of crowns:

< td>– 38.91

< td>573.21

* data from the documents for to the approved state budget without an amount for extraordinary valorization

Source: State Budget Act and data from the Ministry of Finance on the management of the pension insurance system< /em>