August 29, 2018 / 1:02 PM / 3 months ago

Czech government agrees to 8 percent wage rise for state workers

PRAGUE (Reuters) - The Czech Republic’s ruling coalition has agreed an 8 percent wage increase on average for state employees for next year, Prime Minister Andrej Babis said on Wednesday, part of a spending spree that some economists say will hit government finances in the future.

A strong economy, the tightest labour market in the European Union and a steady flow of development subsidies have helped to make the country one of the EU’s strongest performers. It has produced fiscal surpluses in the past two years.

As a result, Babis’s centre-left government has begun to spend more freely, planning the biggest-ever budget spending rise in 2019.

“We reached a compromise that means an average (growth) of around 8 percent,” Babis told reporters after a regular government session.

The raise is in nominal terms and is planned for 2019.

Babis said the biggest increase is planned for teachers - which make up almost 37 percent of the state workforce - and the government will discuss the plan with trade unions on Friday. The unions were seeking a 10-percent rise across the board.

The Czech state employs 453,400 people, according to Finance Ministry data.

Babis won a clear victory for his anti-establishment Action for Dissatisfied Citizens (ANO) party last October by promising to increase state salaries and pensions, boost healthcare spending and upgrade crumbling roads.

But the parliament-appointed National Budget Council, has been cool towards the spending increases and has urged building up reserves for bad times instead.

Czech real wages rose 6.6 percent, their fastest pace in 15 years, in the first quarter.

Inflation slowed down to 2.3 percent in July. The Czech central bank usually works with wage moves in its model only once they are approved.

Czech Finance Minister Alena Schillerova said on Sunday she would propose a 2019 central state budget with a lower-than-planned deficit of 40 billion crowns ($1.81 billion), down from a previous target of 50 billion crowns.

Growth in the export-reliant Czech economy slowed to 2.3 percent in the second quarter. Last year, it expanded by 4.6 percent but is seen slowing to just above 3 percent this year and next.

Reporting by Robert Muller; editing by John Stonestreet and Jane Merriman

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