Budgetary deficit decreasing, but too slowly

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.

The government sent the draft general government budget with a balanced budget for 2020 to parliament

"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.

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. It contains such measures like the introduction of the 13th and 14th salary, the increase of the minimum wage, the exempting of working pensioners from the payment of income taxes, support for those commuting to work, an increase in bonuses for night and weekend work, and more. These measures will increase budgetary expenditures and reduced revenues. Its price tag is about E500 million, according to the Trend weekly.

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 E140 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 in 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 E333 million higher. As a consequence, the projected deficit is not 0.5 percent of GDP but 0.83 percent of GDP. More money should go on wages and social payments while capital investments will be cut.

"Simply said, we will spend more money and invest less," said Štefanides as cited by TASR, adding that 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. 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. "The result are projects like the construction of the national football stadium, the upper-standard valorisation of pensions and support of the spa sector. If the government really wanted to have a balanced budget, such expenditures would not take place."

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 E13.983 billion, up by about E1 billion compared to 2017 and expenditure at E15.956 billion, up by about E600 million, leaving the budget at a deficit of E1.973 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 the 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 E2.47 billion. Compared with 2016 this means a drop of E700 million, the Denník N points out. The reason for the drop is the so-called tax optimalisation of companies and planned cancelation of tax licenses.

On the other hand, employees will pay the state E800 million more in income and payroll taxes in 2018 than this year. This is because more people have jobs and wages have increased.

Some will get more, some less

The Education Ministry will get E1.36 billion or E70 million, 5 percent less compared with the current year. In total, along with the money it will receive via other ministries, there will E3.5 billion allocated for education, E470 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 E144 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 are projected at E40 million.

The Transport Ministry should get E1.18 billion next year, which is E973.65 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 E66 million.

"There is never enough money," said Érsek as cited by TASR.

The ministry will also wait for the conclusion of the ongoing discussions on releasing the so-called debt brake and a possible increase of its expenditures.

"If this does not take place, then it is clear that 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 E4.8 billion, while this sum already includes health premiums paid by individuals as well as the state.

The Presidential Office has registered a significant drop in allocated money. Its budget for 2018 is projected at E4.75 million, a decrease of E1.44 million or 23.3 percent. The decrease is caused by the one-off increase of the budget by E1.55 million in 2017, for securing the technical conditions of the Presidential Palace and the presidential residence in Slavín.

The budget of the Environment Ministry will be lower, by E296 million or 60.6 percent, at E193 million. The reason behind the drop is fewer EU funds.

The Defence Ministry should receive E92 million more than this year: E1.08 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 E2.4 billion at its disposal, up by 2.91 percent compared with 2017. The Culture Ministry will get E36.5 million more: E280 million.

12. Oct 2017 at 17:17 | Jana Liptáková link