Czech Republic: 2022 budget not to offer meaningful consolidation; culprit - election year

2022 will be first year when spending will fall, but decrease is not substantial enough

Pandemic remains main downside risk; in case lockdown is required again, spending will likely return to 2021 levels

Personal income tax cut from end-2020 will still have a considerable impact on revenue in 2022

There are no major discretionary measures that will raise revenue

All improvement in revenue is due to economic cycle and absence of lockdowns

Spending is driven mostly by a higher-than-mandated pension hike and an increase in contributions to state-covered health insurance

Efforts to cut spending elsewhere are miniscule in comparison

EU flows to increase substantially due to RFF and start of payments under 2021-2027 MFF

We didn't expect much from this government during an election year, but it could have made more effort

If centre-right opposition wins majority in new parliament, 2022 budget could go through substantial change

In case 2022 budget passes in current version, it will be very rating negative and a rating downgrade cannot be ruled out