INESS Evaluation of electoral programmes 2023: Public finances

In the run-up to the 2023 early parliamentary elections in Slovakia, we at INESS analysed the programmes of all relevant political parties (those with more than 3% of potential votes in public polls.) We evaluated the programmes in the 5 main areas: education, healthcare, business environment, agriculture and public finances. We bring you our evaluation of the most important area of all: public finances.

Slovakia's general government deficit as a percentage of GDP is expected to be the highest in the EU this year, and the EC forecasts this undesirable EU leadership for Slovakia next year as well. The state has to borrow every sixth euro of its own spending. Consolidating public finances will require uncomfortable and extensive measures on the expenditure side.

In such a situation, we are well aware that without consolidating public finances, it will not be possible to implement good solutions in other areas of public life. Therefore, with our assessment, we would also like to appeal to the next government to approach the issue of public deficit in a sensible and responsible manner.

INESS Evaluation of electoral programmes 2023: Public finances

The assessment of the electoral programmes in this section focuses on measures with a major impact on the balance of public budgets. The general government deficit is expected to be the highest in the EU as a share of GDP this year, and the EC forecasts this undesirable EU leadership for Slovakia next year as well. The state has to borrow every sixth euro of its own spending. Consolidating public finances will require uncomfortable and extensive measures on the expenditure side. Political parties that respond to this in their programmes therefore scored more points in the evaluation.

Most parties are sticking to the idea that it is enough to change the rules and this country will be run efficiently and cheaply, which will make it possible to reduce the deficit. But this state is run and operated by the people. Its 430 000 employees with their own goals and motivations, family relationships, commitments, debts. Efforts to change the culture of governance are noble, but it will take decades of responsible governance to actually manifest in measurable volume. And that is why 'forceful' deficit reduction through cuts is essential. Relying on economic growth alone is like throwing water into a leaky bucket.

Naturally, this is also linked to the assessment of tax policy proposals. The bad spending measures of the last decade should not be cemented in place by raising taxes and stifling the economy. We consider responsible tax policy proposals (in the case of tax increases) to be those that are countered by at least some proposals for savings on the expenditure side. However, the savings in the programmes are like saffron. This, too, is a legacy of the past decade, during which society has developed a habit of a constant flow of new benefits. In such a political climate, the parties do not want to 'fight' for votes with unpopular (but necessary) measures.

In assessing the programmes from a public finance perspective, we also looked at the main social policy expenditures (we assess education and health separately). Social transfers represent a critical part of mandatory government spendings, so even small changes in parameters can have a major impact on overall expenses. In assessing these proposals, we therefore also looked at whether the parties have 1) revealed the price tag of their promises to citizens 2) stated, how they intend to finance them.

 

                                                             

 

Slovenská Národná Strana 2/10

(Slovak National Party; SNS)

What is likeable about the SNS party programme is that it has only three pages and contains no verbal cotton wool. All of Slovakia's ills, as seen by the party's representatives, are solved in it. The party openly defines its position in all value disputes. The problem is that it is not enough to write 'we will win the same subsidies for farmers as Western countries'. Or 'we will reduce state bureaucracy'. The programme is thus primarily a list of objectives, but not of solutions and concrete proposals.

From the point of view of the balance sheet of the state treasury, expenses will increase significantly under this programme. New benefits (€500 for the first wedding), new loans (there is no shortage of honeymoon or housing tax bonuses), increases in old benefits (pensions, child benefits, parental allowances). There is also a new Ministry of Tourism and Sport. The goal of 'bringing strategic enterprises under state control' sounds dangerous and nationalising.

How does the party intend to finance the new expenditure in the order of billions of euros?

Mysteriously absent from the programme is the eradication of corruption. What is not missing, however, is the compulsory and unquantified slimming down of the state bureaucracy. Successful entrepreneurs (a tax on the high profits of the tech giants) and 'of course' the banks must be made to pick up the tab. Even in the case of the strict rates of these taxes, we are talking about hundreds of millions of euros, which, however, will by no means be enough for billions of euros of expenditure.

The most surprising part of the SNS programme is the economic stimulus.

Increasing the VAT registration limit to EUR 100 000 would indeed require a change in the European Commission's attitude, but it is the right step, given that the limit has not been changed for more than ten years, while prices have risen by tens of %. The party also wants to reduce the income tax on entrepreneurs with a turnover of up to EUR 100 000 to 15% again. It wants additional tax relief for pensioners, young employees. This party also wants to reduce VAT on culture and tourism.

However sympathetic these steps may be, in reality they represent an uncovered shortfall in tax revenue. The party has written its programme as if it were unaware of the huge public deficit, as if there were no problem and no need to consolidate public spending.

 

Sme Rodina 0/10

(We are family)

The party did not present a programme, it presented only 5 concrete measures. Only some of the measures quantify the cost to the state, otherwise the party relies on the participation of private investors. We perceive the creation of Agrokomplex, a state scheme to support the production of Slovak foodstuffs, as the biggest risk of these measures. A large-scale scheme may end up with high state expenditure to subsidise a loss-making enterprise. Since the party's programme does not address the issue of consolidating the public deficit in any way, on the contrary, it proposes increasing indebtedness (e.g. a state guarantee of EUR 100 million), it does not score any plus points.

 

Hlas-SD 4 /10

(Voice - Social Democracy)

The party admits at the beginning of the programme that the new government will have to consolidate public finances. But it adds in the second breath that the consolidation is not to be based on cuts in social spending or investment. How the party envisages consolidation is not stated in the programme.

The voice follows the popular political ploy that what is not in the constitution does not count. Introducing social rights into the constitution, such as the right to adequate wages, working hours, holidays, a decent pension, and equal status for men and women, will at best be as effective as defining them in current laws; at worst, it will significantly damage the economy.

The party cannot quite decide what it wants when it states that it will support the birth rate by 'maintaining or increasing' family benefits. It is threatening to introduce new benefits (housing start-up grants, newborn savings accounts, family cards).

The party wants to finance more massive construction of rental flats from EU funds, but the unanswered question is how the European Union would approach this. It is not clear how the party intends to finance the adjustment of the Christmas pension to the value of the average pension (hundreds of millions of euros), as well as other expenditures to support pensioners. We welcome the efforts to increase the value of the minimum subsistence level and the benefits derived from it for people on low incomes. Also, efforts to be more flexible in supporting dependent people in home care. However, this area is significantly cost intensive, with no financial coverage in the programme. A pearl is the funding of the Pensioners' Unity from the state budget.

One billion euros extra per year from the budget should go towards eliminating regional disparities. The proposed Road Infrastructure Fund has been in place for years in the Czech Republic, but its effect will depend on additional resources available, which are not mentioned in the programme.

The petition, launched by the party, creates the illusion that Slovakia is a victim of evil energy companies that have arbitrarily increased energy prices. The party proposes to gain control of the energy companies (by which we mean nationalisation). This is an unnecessary step, since low prices were achieved by the last government even without nationalisation (we do not consider this step to be correct either). Today, households in the Slovak Republic have the second lowest gas price and the sixth lowest household electricity price in the EU (half that of the Czech Republic). We also consider the claim that the state will invest the profits of these companies in healthcare and education to be an unfounded promise. If there are any, a large part of them will have to end up in investments in new transmission infrastructure, for example, or in the party's proposed construction of hydrogen infrastructure. Yet nationalisation is not necessary, the state collects dividends even in the current model, and the party rightly proposes targeted (cheaper) assistance to vulnerable households.

The party does not want to increase the number of new staff (although it proposes the creation of several new offices), but says nothing about reducing their number.

It is not clear how the Hlas envisages decentralisation. On the one hand, there is an increase in the competences of higher territorial units, or the strengthening of local government revenues by a part of the corporate tax, but the programme does not show any effort to transfer more responsibility for economic development to the municipalities themselves.

The programme of the Hlas party is elaborate, it contains many concrete measures that one expects from a traditional social democracy. It focuses on empowering the state, introducing new agencies and funds. However, the party's programme completely ignores the need for consolidation; on the contrary, it proposes new expenditure, which runs into billions. It will not even be able to use the incantation of Euro funds to do this. The ultimate nail in the coffin of this programme is the acquisition of a majority stake in energy companies. Where do they want to get the money for this?

 

SaS - Sloboda a Solidarita 7/10

(Freedom and Solidarity; SaS)

SaS has once again presented a long agenda packed with mostly concrete measures. The party declares a commitment not to increase the tax burden (introduction of a tax brake) and at the same time a return to the same 19% corporate and personal income tax rate. It proposes that excess tax revenues should be linked to deficit reduction, which, combined with spending limits, could lead to faster deficit consolidation. It proposes abolishing the insurance tax and slightly lowering the ceiling on social contributions to 6 times the average wage. Alongside this, it foresees a continuation of the UNITAS reform and thus proposes an annual social contributions settlement. We welcome the increase in the limit for companies to pay VAT, which should have been increased long ago, given the existing inflation. It defines quite specifically a change in the budgeting of taxes in order to strengthen local government revenues, although it is not entirely clear from the text of the programme how the party envisages decentralisation (the freedom and responsibility of local governments to decide on resources).

This year's programme does not lack a levy bonus either, but it would have to be adjusted to take account of the changed parameters of family policy. The parameters of the modified bonus have not been presented. The party is proposing fiscally neutral changes to the tax bonus, which should remove jumps in its amount (according to the age of the child). Also in the SaSka‘s programme we find a housing allowance (a necessary solution to the whole system of energy subsidies) detached from the system of material hardship, already paid when the share of housing costs in household expenditure exceeds 25%.

Quite substantial changes have been introduced by the party in the area of pensions, although these should again be fiscally neutral. Joint spouse/partner pension accounts are a good, simplifying step. However, the introduction of virtual accounts should be coupled with an honest reform of I. Pillar, as it will be very difficult to replace the old model of pension calculation even with built-in solidarity. Greater clarity of the pension system may not materialise. The party wants to reward higher voluntary private savings for retirement with a sum of EUR 1 000, without specifying the total cost. We welcome the return to free access to savings in II. Pillar.

SaS party advocates for personal budgets as a funding tool for long-term social care. Unfortunately, there are no parameters in the program, and this desirable reform will impose significant additional costs. If only because many of those in need cannot access services today, it will be easier with a personal budget.

The logical question after reading the programme is therefore how the party intends to reduce the tax burden, or the new expenditure mentioned above, alongside the consolidation of the huge deficit. Although the party proposes general measures such as reducing the tax gap in VAT collection, increasing the efficiency of tax collection and social contributions (UNITAS), annual settlement of contributions, or strict control of expenditure through the value for money, this is not enough for the deficit, which is expected to reach EUR 7 billion. The programme lacks more specific measures on the expenditure side. To this extent, they do not create room for tax cuts. The privatisation of CARGA is an isolated proposal in the party programmes, but it is questionable whether it will bring any resources at all at the present time.

 

KDH - Kresťanskodemokratické Hnutie 5/10

(Christian Democratic Movement; KDH)

In its programme, the party published the most detailed and concise description of the current dismal situation in public finances. However, the proposed measures are based mainly on a vague record of compliance with responsible and prudent management. Unfortunately, the formula of eradicating the 'shuffle' is not enough. The majority of public expenditure and the source of the deficit are social transfers, and the KDH wants to increase these in many forms.

Here, too, we find the oft-repeated feeling that a new body at the cabinet meeting will change the whole sector (education also has a ministry and reforms are lacking), and so we find a proposal for a ministry of tourism and sport.

The party considers the tax system to be opaque and demotivating. It proposes reintroducing the same tax rate, although it is not clear from the text whether this should be 19% or less. Deductibles are to be indexed to the rise in average wages, which will prevent silent taxation. The proposal to eliminate double taxation of dividends is refreshing. The party talks cautiously about the possibility of moving to the so-called Estonian model of taxing only paid-out profits. Implicit in the proposal is an increase in sinful (such as tobacco, alcohol) excise duties. The KDH also proposes to increase the VAT registration limit, namely to EUR 60 000. The proposal to reduce the tax burden on couples according to the duration of marriage is also unusual.

A novelty is the requirement for an independent evaluation of reform laws. We welcome the emphasis on the necessary limitation of energy price regulation and targeted compensation.

The party proposes simplifying and stabilising the tax system, including the joint collection of taxes and all levies. Micro-loans for 50 000 entrepreneurs will come at the expense of debt.

The party announces another round of decentralisation with the aim of transferring more competences to local governments and financing them with a tax mix.

Families with a working parent and 3 or more children should receive an allowance to buy an electric car, but without specifying the amount of the allowance and the price tag of the measure. No other party has such a detailed social services programme. On the one hand, this gives the impression of in-depth knowledge, but on the other hand, the dozens of proposed measures will together be costly. After all, the party is the only one to admit this when it talks about a gradual 1% increase in resources in this area. More than EUR 1 billion is to be used, among other things, to increase the allowance for home carers by EUR 500, a significant 50% increase in wages in social services. There is no shortage of personal budgets either, thanks to which, with the help of vouchers, citizens will be able to choose for themselves the way and form of care through social services or the compensation they need. Meanwhile, the personal budget was also on the agenda of the government elected in 2020. It was not introduced because the government was unwilling to cut the necessary billion elsewhere.

From the text of the programme, it seems that the KDH wants to change the indexation of pensions to reflect the growth of the average wage. This would be quite costly in the long run; valorisation by pension inflation was adopted because it preserves purchasing power but mainly reduces the future growth of the system's expenditures. The party also proposes to further increase solidarity by distributing 30% of the valorisation amount equally. This would mean a partial levelling of pensions over the lifetime of the pensioner. We welcome the fact that the party is proposing to allow lump-sum withdrawals of savings once again.

The word 'consider' appears 23 times in the programme, which understandably raises doubts about the party's true intentions. As such, the programme is very detailed, containing hundreds of measures without quantifying the costs, which reduces its graspability. In any case, this programme has also avoided specifying savings, but has focused on new benefits and support programmes. Arguing for better governance of the state for a huge deficit is simply not enough.

 

Progresívne Slovensko 6/10

(Progressive Slovakia; PS)

If anyone was surprised that Progressive Slovakia party was slightly to the right economically in the electoral compass, they haven't read the party's programme. The PS does not want to increase the tax burden. There is no proposal for new taxes in the programme, but the party would like to introduce a change in the tax mix. Indirect taxes should finance the reduction of personal or corporate income tax rates. The net income of low-income earners should be increased by introducing a levy deduction. We welcome the fact that this should not only apply to health levies (which we believe should be abolished, as they indirectly affect the economy of health insurance companies), but also to social levies. Unfortunately, these promises are not accompanied by an indication of the target rates, thus the impact cannot be estimated.

They want to support entrepreneurship by accelerating depreciation, a more reasonable tax loss deduction, or by exempting capital income from taxation when held by Slovak companies. At the same time, the party wants to introduce e-invoicing, presumably to increase VAT collection. But the programme can be faulted for a lack of specificity in its proposals - what is one to take from the sentence: 'We will adjust the taxation of financial assets and investments in companies, including alternative forms of investment (e.g. cryptocurrencies), in the same way as in neighbouring countries of the European Union'?

The party wants to give more freedom to local governments in the collection of taxes and fees, and it wants to achieve greater revenue stability by financing with various taxes, like other parties. Does this mean that the party is a fan of decentralisation?

The party wants to give families a unified parental allowance with the possibility of flexible drawdown, but again without a price tag. Before starting school, families should receive a child allowance of EUR 350 per month. The party wants to extend the range of family benefits of one of the most generous family policy systems in the EU to include a post-natal allowance, again without a price tag. The party also wants to extend across-the-board lunch subsidies to kindergartens. It wants to help borrowers facing rising interest rates with mortgage holidays. These expenses will certainly not be free; the party has not put a price tag on them. It wants to support low-income households with an allowance for housing costs if these exceed 30% of household income.

Spending on survivors' pensions should be increased, and the party wants to introduce the payment of a partial pension before retirement age. We welcome the desire to increase contributions to the second pillar, as well as the sharing of pension rights for spouses/partners during childcare periods.

The proposal to increase the reduction requirement to 60% or 65% is questionable. A 5% increase in the target is 3.6 million tonnes of emissions, while US Steel with a reduction of 2.6 million tonnes and the Nováky power plant will already be "used" to achieve the current 55% target. 3.6 million tonnes are the emissions of the three Slovnaft plants, so any further reductions in the short term will require more public resources, and not only from the European Union's coffers.

Progressive Slovakia also relies mainly on spending limits, i.e. mandatory deficit reduction of 0.5%, to finance consolidation. Concrete austerity measures are minimal, such as not paying insurance premiums for state property. Otherwise, the party, like others, relies on systemic changes, such as stricter control of expenditure during the approval process, or reducing the tax gap.

 

SMER-SSD (1/10)

(Direction - Slovak Social Democracy)

The party did not publish a classical programme but only programme points. It defines itself against neoliberal global megatrends and talks about the need for a strong state. It questions the unregulated free market and, on the contrary, proposes strong regulatory interventions if necessary. In the welfare state section we find dozens of spending measures, ranging from interest rate subsidies on mortgages, to ensuring affordable prices for goods and services, to a full 13th pension (today it is about half that). Again, we find a point with the proposal to cap the retirement age, or more generous indexation of pensions.

No details of the programme entitled "National Natality Programme" are published in the programme. Are we to imagine financial incentives for families?

The party wants to support the economy with large-scale stimulus measures, which, coupled with social programmes, are intended to finance excessively profitable sectors in solidarity with taxes. At the same time, the party will promote the right of the business sector to a reasonable profit. It says nothing about how much that is. However, economists know that there is no such thing as a reasonable profit. In the case of efficiency (what that means, we don't know), it will demand the nationalisation of the energy sector.

All we will find under savings measures is "Analysis of the efficiency of public spending" and "Reasonable consolidation efforts" in the recovery of public finances.

It is clear from the published material that the party wants to build an expensive welfare state financed by banks and big business. However, neither a bank tax (EUR 100-200 million) nor an increase in the levy on regulated entities (EUR 100 million) will finance the large-scale spending plans. A return to the retirement age ceiling means large deficits in the future. The party does not seem to consider the current level of the deficit as critical.

 

Republika 4/10

(Republic)

When one reads the party's programme, one comes across the phrases "we will continue to promote the expansion of personal and financial freedom of the individual", "we will reduce personal income taxes and shift the tax burden to indirect taxes", "we will strengthen and secure the savings system", "we will introduce the concept of one levy-one tax". The party has an ambitious target of reducing the structural deficit to below 2% of GDP and keeping net debt below 50% of GDP. To this end, it proposes licences for tradesmen (one payment), improving the business environment.

There are no specific proposals in the programme to increase benefits, but rather the aim of ensuring that services are available to citizens, even in remote regions.

But then elements typical of nationalist economic management come to the surface. Support for small and medium-sized enterprises is to be financed by taxing for-profit companies (especially monopolies with foreign owners). The economy is to be governed by long-term national economic plans. Energy and waterworks are to be returned to state hands, as is pricing.

The national interest can also be felt in the desire to support the domestic construction sector, which is expected to reach 10% of GDP. The state is to provide extensive resources for housing construction, there is no shortage of subsidies to support people with mortgages, every child means a reduction in the volume of credit. To this must be added the preference for Slovak contractors in state procurement. Unfortunately, this traditional 'bricks and mortar' view of sustainable economic growth is not enough. Although the party talks about promoting high value-added entrepreneurship, this is often rooted and originating abroad.

The party also proposes multi-source funding for local governments and suggests reducing the number of local government districts (LGDs) to 3+1 or 4+1.

Concrete austerity measures are minimal. We are intrigued by the proposal to abolish long-vacant positions in the public administration.

The Republic's programme contains bright moments, the party is well aware of the risks of a deficit budget or a problematic pension system (it does not propose a ceiling on the retirement age). However, it contains a strong emphasis on state decision-making on the direction of the economy, preference for Slovak suppliers, and reliance on the role of concrete. But these are steps that will hamper economic growth and thus future tax revenues. The approach to consolidating the huge deficit is summed up in a phrase from the programme, "Quite simply, we will bring the necessary order and system to the state's economy that will make Slovakia grow and prosper in a sustainable way."

 

Aliancia 2/10

(Alliance)

It is difficult to evaluate the Alliance's programme, as a large part of the programme is dedicated to solving problems of regions with a high proportion of Hungarian minority. The party advocates "spending" limits as a tool of responsible fiscal policy in order to achieve a balanced budget. It proposes the introduction of a Sunset Clause, which would give regulations introducing bureaucracy a lifetime of three years. It proposes a levy deduction for low-paid employees.

It emphasizes the management of local governments, where it also proposes the ability of local governments to change the level of tax rates (it does not specify which ones, but we assume they are income taxes).

Alongside this, the programme contains a number of expenditure items, primarily to support minority life, but also, for example, to subsidise electricity prices at 2021 levels until the end of the electoral cycle. There is also protection for households against high mortgage payments.

Overall, the programme lacks solutions to raise additional resources and to deal with the high deficit. Expenditure items are neither specified nor priced.

 

Demokrati (4/10)

(Democrats)

The party's program contains hundreds of specific and, unlike other parties, often specified measures, although the voter will not even get a price tag on how much taxes will be needed to fund them.

The proposals on pensions in particular are crucial. The valorisation of pensions is intended to reduce the sustainability of the first pillar, as the valorisation is to include the rise in the average wage. There will be a substantial increase in future spending due to the proposed inclusion of periods in both secondary and higher education. This will automatically increase the pensions of future pensioners by a fifth (University graduates) or a ninth (High School graduates). Not only does the counting make no sense in a merit system (studying is not work, one studies basically for a higher income), it will also reduce the incentive to work at an older age. To this, the party adds the additional cost of increasing early retirement entitlements, which will also increase people's incentive to leave the labour market. We welcome the efforts to allow free access to savings in Second Pillar.

Family policy proposals are also financially challenging. In the past year, this expenditure has risen by a third, among the highest in the EU, but in the party's programme we find a further sharp rise in this non-addressed expenditure. A higher tax bonus even for university students (many of whom already have their own income), the unification of the parental allowance at a higher level, a reduction in contributions for parents bringing up children, and several others. An increase in the tax bonus for young people's mortgages. The state should also help mortgage borrowers with repayment complications. We welcome the introduction of a housing allowance regardless of material need, although the party has not specified the conditions.

In addition to the family policy, a scrapping allowance of EUR 2 000 per car and EUR 5 000 per electric car should be added, which could represent new expenditure in the order of tens of millions of euros. A subsidy of EUR 19 000 for energy renovation of a house is to be enshrined in the law.

On the other hand, the party proposes a return to the same 19% tax rate. Introduce a single levy deduction and increase the tax-free minimum, which should also apply to pensioners. The party also wants to be one of the few to abolish the special levy on regulated entities, which taxes selected businesses in an unsystematic way. It wants to abolish the health levy on passive income or reduce the minimum levy for self-employed persons.

How does the party intend to tackle the huge deficit, the significant increase in spending and the tax cuts at the same time?

It's the standard mix of "improve the system, cap spending, introduce UNITAS, save on operations, a value for money for every ministry". This will certainly not be enough, nor will savings in tax expenditure. After all, the largest part of it is the tax-free part of the income tax base, which the party proposes to increase. It will not be operational savings, but the area of social transfers is the only one that offers sufficient scope for savings.

 

OĽaNO a priatelia (0/10)

(Ordinary People and Independent Personalities; OĽaNO)

The party did not publish the program. It published the Agreement with Slovakia, in which it proposes a further increase in spending in the area of ​​family policy in the form of a 100 euro tax bonus for mothers and workers under 25 years of age. The measure has no price tag. Also, mortgage holidays for families with children under 6 years old. The Agreement with Slovakia does not include any consolidation measures, while the sudden increase in family policy spending pushed by this party is one of the key causes of the current high deficit. A reward of 500 euros for participation in the elections would increase the deficit by approx. EURO 1.5 billion.

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