SLOVAKIA has escaped the ills of a provisional state budget after the opposition Smer party helped the governing centre-right parties to pass their draft budget for 2012. It did so by ensuring that 17 Smer MPs were absent for the December 7 vote, thereby placing a majority within the government’s reach despite the refusal of the independent Ordinary People faction to back the budget. The bill projects a deficit of 4.6 percent of gross domestic product (GDP) in 2012.
Smer did secure a bonus for its help: the ruling parties approved the creation of a €50-million reserve fund for the health-care sector, using money originally intended to co-finance European projects.
Smer leader Robert Fico, who had previously said his party would oppose the budget, commented before the final vote on December 7 that it was better to have a less-good budget than no budget at all, the Sme daily reported.
The state budget drafted by Finance Minister Ivan Mikloš counts on revenue of €13.625 billion and expenditure of €17.23 billion, resulting in a deficit of €3.675 billion, and assumes that the country's economy will grow by 1.7 percent next year.
However, market watchers say that Slovakia’s growth is at the mercy of the economic performance of its major trading partners and that forecasts could therefore take a turn for the worse.
The day after the budget vote MPs also passed a constitutional debt-ceiling law that should force future governments to exercise better budgetary discipline. Mikloš said that passing this legislation along with the budget, which he himself does not consider ideal, will help Slovakia to preserve its credibility on financial markets, the SITA newswire reported.
In late November Slovakia was reminded of its potential vulnerability on financial markets when it experienced difficulty borrowing money to service its debt.
The budget debate
After a stormy parliamentary debate involving some catcalling between the ruling parties and Smer, the bill was backed by all deputies from the ruling Slovak Democratic and Christian Union (SDKÚ), Freedom and Solidarity (SaS), Christian Democratic Movement (KDH), and Most-Híd parties, with independent legislator Andrej Ďurkovský (previously of the KDH) also supporting it.
The opposition Slovak National Party (SNS) caucus voted against the budget proposal, as did two former SNS caucus members, Anna Belousovová and Rudolf Pučík. Seventeen Smer deputies abstained from the vote, with the rest of the Smer caucus voting against the budget. Four lawmakers from the Ordinary People grouping led by Igor Matovič abstained. Matovič had demanded that election expenses paid by the state to political parties be reduced by €10 million, and that MPs’ pay be frozen until Slovakia balanced its budget.
The priorities of the state budget for 2012 will be highway construction, as well as pay rises for teachers and doctors. The Ministry of Transport, Construction and Regional Development will see its budget grow by 12.9 percent, or €244 million, to reach €2.126 billion, the largest increase in the budget.
Former finance minister Ján Počiatek of Smer party said that the development of the country’s economy will be significantly worse than the budget assumes.
“Even saying that next year there will be zero growth would sound optimistic,” said Počiatek, as quoted by SITA, during his contribution to the debate in parliament. “In this case the deficit would reach 6 percent.”
Počiatek accused the Finance Ministry of what he called “an unwillingness to update the prediction” since it would have to come up with some concrete solutions as to how to resolve the situation.
Mikloš retorted that under the Fico government, with Počiatek as finance minister, at a time when it was necessary to save public funds – specifically, when the state budget for 2009 was being drafted – Slovakia’s public spending instead grew faster than any of its neighbours’, despite the country not having to rescue its banks.
Mikloš’ budget had originally projected a deficit of 3.8 percent of GDP, but lower-than-predicted economic growth and tax revenues as well as failure to reform the payroll-tax system meant that the deficit projection was later hiked to 4.6 percent.
SaS chairman Richard Sulík blamed the higher-than-planned deficit on its former coalition partners, KDH and Most-Híd, arguing that they were “refusing to debate any measures that would have gotten us to the originally planned deficit”, SITA reported.
Ivan Švejna of Most-Híd said that even if next year’s budget is not ideal it reflects the current internal political situation and what is happening outside Slovakia.
But Sulík also said that responsibility for eventual revision of the budget, built on the assumption that the economy will grow by 1.7 percent in 2012, rests with Finance Minister Mikloš.
The predictions
The European Commission has been more pessimistic in its 2012 growth prediction for Slovakia, forecasting that GDP will rise by only 1.1 percent, as opposed to the Finance Ministry’s 1.7 percent prognosis.
“With the outlook for our major export markets continually deteriorating, it is clear Slovakia’s outlook is built on sand,” Vladimír Vaňo, chief analyst at Volksbank Slovensko, told The Slovak Spectator. “As we saw in 2009, a small export driven economy mimics the movements of its major export partners.”
According to Vaňo, if one considers that it took only one year to slip from a budget surplus of 5.9 percent in 2008 to a budget deficit of 4.9 percent in 2009 in real GDP the discussion about a few decimal points – at this stage – is not really important. This is especially true if one takes into account the Czech National Bank’s latest forecasts for next year: its central scenario foresees growth slowing to 1.2 percent, while its alternative scenario predicts a 0.4-percent contraction, Vaňo pointed out.
