Deficit too slow to drop

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Deficit too slow to drop

"WE KEEP on consolidating public finances," said Finance Minister Peter Kažimír on October 11 after the government passed the most significant law of the year - the general government budget for 2018- 2020, including the 2018 state budget.

The government again postponed the goal of a balanced budget, this time to 2020. Analysts see social and other measures pursued by ruling parties behind the slower reduction of the budget deficit. These increase expenditures and reduce revenues, even though robust economic growth compensates for a portion of the created gap. In 2018 the general government deficit is projected to fall, for the first time in Slovakia's history, below 1 percent of GDP, to 0.83 percent. The year after it should be 0.1 percent of GDP and in 2020, the year when Slovakia will hold general elections, the ministry is planning a balanced budget. Originally Robert Fico's government had planned to achieve a balanced budget in 2018. "We consider postponing the creation of a balanced budget to be a negative feature of the budget, especially in the context that we are currently living in good times, the economy is performing well and growing strongly and revenues are increasing," said Ivan Šramko, head of the Council for Budgetary Responsibility (RZZ), as cited by the TASR newswire.

Consolidation not a priority

However, the higher revenues are not used primarily for the consolidation of public finances but other goals. "This is the fact postponing the creation of a balanced budget, which should be the goal of this government," said Šramko.

The draft state budget is taking into consideration the latest social package, which will increase budgetary expenditures and reduce revenues. Minister Kažimír said that the draft state budget was based on the political agreement of all coalition parties, when measures only within the Labour Ministry accounted for EUR140 million. He recalled that the corporate tax was slashed by 1 percentage point as of 2017 and that tax licenses will be cancelled. These measures reduce revenues. Zdenko Štefanides, chief economist at VÚB Banka, points out that compared to original plans from the government's Stability Programme, budgetary revenues are projected to almost mimic last year's plans, but expenditures are projected to be EUR333 million higher. As a consequence, the projected deficit is not 0.5 percent of GDP but 0.83 percent of GDP. The public sector is spending more in the long run than it originally intended.

"Only thanks to the thriving economy bringing higher revenues into the public sector is the deficit not increasing but decreasing," said Štefanides as cited by TASR. "Not a lack of revenues but excessive consumption is the reason why we still don't have a balanced budget." Radovan Ďurana, analyst with the economic think tank INESS, points out the ineffective spending.

"The government does not consider the balanced budget to be important," said Ďurana, adding that it is trying to spend as much money from the state coffers as possible.

Analyst with Slovenská Sporiteľňa Katarína Muchová considers the draft state budget for 2018 as realistic but less ambitious than the 2017 budget. In her opinion the government has to try to achieve a balanced or even surplus budget in good economic times.

"Revenues higher than expenditures could create a reserve for worse times," said Muchová as cited by TASR. Draft state budget for 2018 Parliament is scheduled to discuss the budget draft at the turn of November and December. Total revenues of the state budget for 2018 are projected at EUR13.983 billio and expenditure at EUR15.956 billion, leaving the budget at a deficit of EUR1.973 billion.

The deficit will fall for the first time below 1 percent of GDP, to 0.83 percent. The public debt should dwindle to 49.9 percent of GDP next year. It should be further reduced to 45 percent of GDP in 2020.

Šramko would like to see the debt decreased to 40 percent. This is, according to the analyses of the Council for Budgetary Responsibility as well as the OECD, a sustainable and secure level enabling space for the government in times of economic crisis to aid the economy and the mitigation of a crisis's impact. The draft budget is based on the current macroeconomic prognosis, envisaging Slovakia, after a solid growth of 3.3 percent of GDP in 2017, to grow by 4.2 percent next year. The inflation rate should be 1.7 percent in 2018. There should be more than 33,000 new jobs. The economic growth's acceleration should chiefly result from new automotive production and related export growth joining growing household consumption.

The British carmaker Jaguar Land Rover, which is building a brand new plant in Nitra, plans to launch production in late 2018. The structure of economic growth will stand on solid fundamentals. The jobless rate should decrease to a national record of 7.3 percent with prospects of its further fall to 6 percent, the draft budget reads.

In terms of tax revenues, the draft budget for 2018 counts on a corporate tax of EUR2.47 billion. Compared with 2016 this means a drop of EUR700 million, the Denník N points out. The reason for the drop is the so-called tax optimisation of companies and planned cancelation of tax licenses. On the other hand, employees will pay the state EUR800 million more in income and payroll taxes in 2018 than this year. This is because more people have jobs and wages have increased.

Education is a sore point

The Education Ministry will get EUR1.36 billion or EUR70 million, 5 percent less compared with the current year. In total, along with the money it will receive via other ministries, there will be EUR3.5 billion allocated for education, EUR470 million more than in 2017. "The truth is that education is the sore point of Slovakia," said Kažimír. "We would finally like to see some education reform."

He explained the drop in finances allocated for the Education Ministry by the drop in EU funds. This year it was expected that there would be spent EUR144 million in EU funds on education. But due to the scandal with the EU funds for science and research nothing will be spent. Next year EU funds for education are projected at EUR40 million.

The Transport Ministry should get EUR1.18 billion next year, which is EUR973.65 million less than this year. However, this sum does not include EU funds yet. Minister Árpák Érsek has managed to negotiate an increase in the budget by EUR66 million. The ministry will wait for the conclusion of the ongoing discussions on releasing the so-called debt brake and a possible increase of its expenditures.

"From today's allocated money it will not be possible to launch the construction of all the infrastructure stretches that will be prepared," said spokesperson Karolína Ducká. Health care revenues should increase 7.7 percent to EUR4.8 billion, while this sum already includes health premiums paid by individuals as well as the state.

The budget of the Environment Ministry will be lower, by EUR296 million or 60.6 percent, at EUR193 million. The reason behind the drop is fewer EU funds.

The Defence Ministry should receive EUR92 million more than this year: EUR1.08 billion. This accounts for 1.22 percent of GDP and lags significantly behind the obligation of Slovakia to spend 1.60 percent of GDP on defence in 2020. The Interior Ministry will have EUR2.4 billion at its disposal, up by 2.91 percent compared with 2017. The Culture Ministry will get EUR36.5 million more: EUR280 million.

BY JANA LIPTÁKOVÁ Spectator staff

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