IN LINE with its pre-election promises of "greater solidarity," the new cabinet of Prime Minister Robert Fico has already made a number of proposals which could increase the deficit, raise inflation and delay the adoption of the euro in 2009.
While not all of the intentions in the government programme will be put into practice, the promised expenditures are already making financial markets nervous.
"Although in the past reality has often turned out to be quite different from the promises in a cabinet programme, it [the programme] indicates the intentions of a new government," reads an analysis of the Fico government's programme by the Institute of Economic and Social Studies.
The cabinet programme, which was recently approved by parliament, includes measures such as cutting the VAT rate from 19 percent to an unspecified level on selected goods and services. The programme also promises partial compensation for people who lost money in now-bankrupt pyramid schemes such as Horizont Slovakia.
The cabinet further pledges to halt the privatisation of companies it regards as strategically important to the Slovak economy, such as the ZSSK Cargo Slovakia railway transport company. It also intends to offer mortgage interest rate subsidies for people up to 35 years of age whose incomes are less than 1.3 times the average monthly wage.
The government has already approved Christmas bonuses for all pensioners receiving up to Sk10,365 per month. They will get an extra Sk1,500 to Sk2,000 at the end of 2006. These bonuses will cost the state an extra Sk1.7 billion.
To compensate for these expenditures, the cabinet has put forward only a few plans, such as increasing the rate of income tax on people with higher incomes, and cutting administrative spending at the state level.
According to analysts, the market is now waiting for the final version of the state budget to see what the government programme looks like in fiscal terms. "The cabinet's programme has been vague," Marek Gábriš, an analyst with ČSOB, told The Slovak Spectator. "At this point, it's impossible to calculate the impact of this fiscal policy without knowing how the policy will be carried out."
The draft state budget promised to keep the deficit at 3 percent of the GDP. However, the document does not include all of the cabinet's promises as set out in its programme, and analysts emphasize that the promises might be included in future versions of the proposal.
Cabinet also promised to fund:
- use of renewable energy
- tourism/hotel industry
- Košice to Hungary freeway
- repairs to roads and bridges
- broadband Internet in villages
- maximum subsidies for farmers
- protection against floods
- village reconstruction
- housing for young families
- increased pensions
- higher handouts to parents on birth of first child
- higher benefits for parents
- benefit to parents who must retire to look after children
- more health insurance for the unemployed
- research centres
- science, literature, magazines, excursions and other activities that give recognition to Slovak history, politics, literature and cultural life
- education (to 5 percent of GDP)
- buying Slovak art from abroad
Source: Trend weekly