Expenditure cuts appear to have been the most painful element for the Slovak economy in the short term, stated the Financial Policy Institute (IFP) in its latest report in which it looked into the impact of the government’s consolidation packages in recent years.

The least painful impact on economic growth has been an increase in indirect taxes, the TASR newswire quoted IFP on July 16.

Slovakia has seen three periods of fiscal consolidation - between 1993 and 1995, 2003 and 2005 and 2011 and 2013. IFP stated that despite significant consolidation efforts during the second of these periods, economic growth accelerated.

“This was due in particular to a positive situation in the world economy, Slovakia’s accession to the European Union, structural reforms, and also a low starting level for the economy,” said IFP. According to the Institute, the consolidation that began in 2011 reduced economic growth by between 1 and 1.8 percentage points.

As for the excessive deficit procedure, the government in 2009 pledged to reduce the deficit below 3 percent of GDP by 2013. “If no measures had been taken, last year’s deficit would have reached 4.9 percent of GDP. According to the latest estimates, consolidation measures amounting to €1.6 billion were required to achieve the final balance of 2.8 percent of GDP,” TASR quoted IFP.

The 2013 fiscal consolidation reduced GDP growth by less than 0.2 percentage points. The Institute also revealed that cuts in expenditures and labour costs appear to be less harmful for the economy when compared to the reduction in state investments.

“On the revenue side, an increase in taxes seems to have had a smaller negative impact on the economy than increases in levies,” said IFP.

The IFP’s mission is to provide reliable macroeconomic and fiscal analyses and forecasts for the Slovak government and public. It also serves as a policy arm of the Finance Ministry.

(Source: TASR)
Compiled by Zuzana Vilikovská from press reports
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