Slovakia will have deficit budget in 2018

Analysts call for faster consolidation of public finances

Slovakia will have deficit budget in 2018

Slovakia is enjoying robust growth in its economy. In spite of this, the Robert Fico government pushed through parliament another deficit budget and again, postponed reaching a balanced deficit.

“The adopted budget is a glue for the ruling coalition,” said Prime Minister Robert Fico after parliament adopted the law of the year, referring to the summer crisis in the ruling coalition of his Smer party, the Slovak National Party (SNS) and Most-Híd.

The crisis resulted in shaping another social package, which includes measures sponsored by individual coalition parties like the 13th and 14th salaries, the increase of the minimum wage, the exemption of working pensioners from the payment of income taxes, as well as an increase in bonuses for night, weekend and holiday work. Since several of these measures are waiting to be incorporated into Slovak legislation, their impact on public finances is still unclear.

READ ALSO:Minister Kažimír presents a new budget

Analysts criticise the government for too slow consolidation of public finances.
“The budget is a wasted opportunity,” said Róbert Vlachynský, analyst with the economic think-tank INESS.

The budget

The adopted state budget projects revenues of €13.983 billion and expenditures of €15.956 billion, leaving a deficit of €1.973 billion next year. The basis for calculating the budget was a macro-economic prognosis foreseeing the national economy as growing by 4.2 percent in 2018.

Behind the acceleration of the economy’s growth is mostly the planned production launch in car plants and the related growth of exports.

“We can say that there will be sound economic growth based on domestic consumption,” Finance Minister Peter Kažimír said, as cited by TASR. “It includes key investments, too.”

The public finance deficit should fall, for the first time in history, below 1 percent of the gross domestic product (GDP) to 0.83 percent. In 2019, the deficit should be at 0.1 percent of GDP, and by 2020, the goal for the budget is to be balanced. If these goals are achieved, the level of public debt is calculated at nearly below 50 percent of GDP (i.e. 49.9 percent). The debt should fall further by 2020 – to around 45 percent of GDP.

Kažimír refuses criticism for postponing a balanced budget and claims that otherwise, the government will do nothing good for the people.

“The budget comprises many priorities,” Kažimír commented, as quoted by TASR. “For example, the refunding of the obligation to increase the salaries of state employees, an increase in the funding of education, big investment projects to be subsidised from the state reserve, already passed legislative amendments in social insurance and employment services. These are massive laws, also in terms of their impact on public finances.”

Budget deficit decreasing, but too slowly

The analysts appraise the reduction of the deficit, but they believe that it is too slow and that the government is not using these developments for the bigger consolidation of public finances. The Fico government originally planned a balanced deficit for 2018. They also see risks of the government failing to achieve its deficit goals once again.

The Fico government last maintain its deficit plans in 2013. Since this year, the final deficit has been higher than expected. For example, last year it was projected at 1.93 percent but reached 2.19 percent. For 2017, it is projected at 1.29 percent but is expected to reach 1.6 percent.

The European Commission has observed that the government keeps postponing its goals in terms of reducing the deficit and not meeting its plans.

The Council for Budgetary Responsibility (RZZ) sees risks for failing to achieve its goals in the budget, calculated at around €1 billion. Since there are reserves of about €600 million in the budget, the net risk is lower, Ivan Šramko, head of RZZ, told the Sme daily. He claims that the overestimated non-tax revenues on the side of revenues and underrated costs in health care on the side of expenditures are among the main risks.

Šramko views structural reforms as key to sustainable public finances and the positive development of the debt and the deficit. No such reforms are being planned in the time being.

“The last significant structural reform with a positive impact on long-term sustainability was the change of the pension system in 2012,” said Šramko. “Since this time, there have been no reforms with such an impact.”

In his opinion, health care, as well as the education sector, should be reformed while all public administration should be made to be more effective.

 

Jana Liptáková, SME, link

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