INESS - 18.11.2008
Government launches financial crisis package (The Slovak Spectator)
Balíčekvládnych opatrení zameraných na elimináciu negatívnych dopadov svetovej
finančnej krízy na Slovensko podrobnejšie komentoval pre The Slovak Spectator
dňa 17.11. 2008 Radovan Ďurana z INESS.
MORE effective use of EU funds,
loans for small and medium-sized businesses, support for applied research and
innovation, public spending cuts, a committee to monitor the impact of the
global crisis, a push to influence the pricing policies of energy companies and
preferential treatment for domestic suppliers are just a few of the 26 items in
the government’s plan to help Slovakia survive the global financial crisis.
“The basic condition for minimising
the impacts of the crisis on the economy is that we start implementing these
measures without any delay so that time is not wasted by additional formal
steps,” Economy Minister Ľubomír Jahnátek said in an official statement. “We
would regularly, on a monthly basis, evaluate this document and update it based
on the actual needs that might emerge.”
While the country’s economy
minister has urged the nation to start applying the plan without any delay,
observers say the government is not really offering anything new, or at least
nothing which had not already been announced. The critics added that some of
the measures are little more than a rhetorical exercise which will not
realistically provide the country with any protection from the effects of the
crisis.
The government adopted the package
on November 6 after talks with unions and some employers.
Prime Minister Robert Fico was
quick to announce that none of the ambitious plan would be paid for by raising
taxes or levies.
“We will not walk the path of
privatising strategic companies,” Fico added, speaking on public-service
broadcaster Slovak Radio.
Fico also said that none of the
decisions would be made at the expense of social programmes that his government
has approved or planned.
Revisions, bonuses and preferential treatment
The Slovak government has derived
some comfort from predictions that Slovakia is likely to have the fastest
growing economy in the European Union next year and remain one of the top
performers in the Organisation for Economic Cooperation and Development (OECD).
However, the Economy Ministry in
its official statement conceded that “today there is no doubt that the
financial crisis will be fundamentally reflected in the real economy, which
means that economic growth will slow significantly and that unemployment will
increase. Only the depth and the duration of the crisis remain in doubt.”
The ministry’s crisis survival
package includes items related to the utilisation of European Union funds and
the planning of PPP projects, while also proposing funding alternatives for
highway construction. The government will consider loans to small and
medium-sized businesses and improvement of some labour market policies. The
Fico administration will also revise the law on investment support and increase
domestic consumption.
The completion of the nuclear power
plant in Mochovce and the construction of, and upgrades to, thermal power
plants also made it into the package, along with a government pledge to
persuade energy suppliers to sell their products for what the government calls
a reasonable price.
Among the most contentious items
was the government’s stated intention to give preference to Slovak companies in
state tenders.
“When the Army is to get new
uniforms and boots, there is no reason for these to be made in Poland, Germany,
or Austria; they will be sewn in Slovakia,” the prime minister said, as quoted
by the SITA newswire.
Analysts unconvinced
Peter Goliáš of the Institute for
Economic and Social Reforms (INEKO) described the government’s intention to
favour domestic suppliers in public tenders as an unpleasant surprise.
“The problem is that giving
preference to domestic suppliers if they are more expensive and offer lower
quality than foreign suppliers would be a waste of public funds,” Goliáš told
The Slovak Spectator.
For Goliáš the government’s
first-aid legislative package to ease the impacts of the crisis does not really
include any measures which the government has not previously heralded.
“The better use of Eurofunds, the
construction of highways through PPP projects, pressure on energy prices or the
completion of Mochovce are nothing new,” Goliáš said. “The cabinet has been
advocating these things since it gained power.”
Radovan Ďurana of INES, an economic think-tank, said that the steps the
government is proposing are, for the most part, unlikely in the long-term to
ease the impacts or causes of the world financial crisis in a responsible way.
“The path of government demand, which is proposed in this material, is
not a happy solution for stimulating the economy because the government does
not have its own resources to inject into the economy; first, it has to take
them from somewhere else, where they will then be lacking later on,” Ďurana
told The Slovak Spectator. “Besides, such a solution is not tenable and will
later lead to the type of economic slowdown which we experienced in the late
1990s.”
The government has forgotten that the groups which can react best will
be companies, because they, unlike the government, have local information
pertaining to their business, said Ďurana.
According to Ďurana, 75 percent of Slovaks work in the private sector
which is why the government should focus on freeing the hands of businesses
through deregulation of the markets, making labour markets more flexible,
cutting taxes and levies and improving the business environment.
Warning that it was a negative
sign, Goliáš pointed to the government’s last-minute elimination from the
package of an obligation to keep the public finance deficit at 1.7 percent of
GDP next year. At the same time, the government suggested that the public
finance deficits for 2010 and 2011 might be re-evaluated.
“It seems that the government wants
in the forthcoming years to spend more money and push the country into debt,”
Goliáš said. “It is dangerous that the government plans to use one-off incomes,
gained for example from the second-pillar of the pension system, in the state
budget.”
According to Ďurana, public funds have been wasted through ineffective
management and non-specific use of over Sk40 billion. These resources could be
used to finance pension reform and ease the tax burden, he added.
Fico also said that the priority of
the measures is to maintain current levels of employment at any price.
“Employment can be preserved at its current levels only on the
condition that businesses are allowed to react flexibly to the changing
conditions in Slovakia and abroad,” Ďurana said. “Meeting this condition
however means reducing the costs of labour, the tax and payroll burden and
creating more flexible labour relations, which means reforming the labour
code.”
However, Ďurana said these measures were not to be found in the
government’s package.
Goliáš mentioned the case of
Siderit, a magnesite mining company which received a Sk183-million state
subsidy but which later laid off hundreds of people anyway, he said.
“The government definitely should
not support ineffective jobs,” Goliáš said.
With economic growth estimates at
between 3 and 5 percent, no radical measures in the form of special fiscal
impulses are necessary, he added.
“Instead the government should
maintain macro-economic stability, which is means a low deficit and low
inflation,” Goliáš added.
“At the same time it should
continuously improve the business environment, first of all through cutting
payroll taxes for employees, shortening the time for arranging tax-levy duties,
unifying the tax calculation base for different kinds of incomes, improving the
functioning of courts, allowing a more flexible labour market, transparent
public tenders and price regulation,” he said.
awards
