Euro-friendly budget makes it to parliament

THE DRAFT state budget for the next two years is now before parliament, and it is expected to sail through with no major changes.
Prime Minister Robert Fico said the budget lets the government continue its social orientation while keeping the projected deficit at 2.3 percent of the GDP - meeting a key target for eurozone entry.

THE DRAFT state budget for the next two years is now before parliament, and it is expected to sail through with no major changes.

Prime Minister Robert Fico said the budget lets the government continue its social orientation while keeping the projected deficit at 2.3 percent of the GDP - meeting a key target for eurozone entry.

But the opposition knocked the budget, saying it focuses on the wrong priorities.

The cabinet approved the budget legislation on October 11, with days to spare before the October 15 deadline when it was required to be submitted to the parliament.

The draft budget for 2008 to 2010 projects a deficit of Sk31.981 billion (€953.8 million), Sk7.8 billion more than in the first draft.

The proposed budget revenues are projected at Sk348.2 billion, Sk2.3 billion more than the ruling coalition parties had originally planned. The budget expenditures are planned at Sk380.2 billion, which is Sk10.1 billion more than in the previous proposal.

The Finance Ministry does not expect any significant changes to be made to the draft budget in the parliament, ministry spokesman Miroslav Šmál told The Slovak Spectator.

The ruling coalition trio - Smer, the Movement for a Democratic Slovakia (HZDS) and the Slovak National Party (SNS) - said they were happy with the budget.

But former finance minister Ivan Mikloš said the budget has completely mistaken priorities that will inflate expenditures in the future.

"The positive side of the budget is that it actually could have been worse, and it actually officially meets the Maastricht criteria," Mikloš said, as quoted by the SITA newswire.

The Education Ministry is lined up to get the biggest piece of the budget pie, with Sk55.494 billion. It's followed by the Labour, Health, Defense and Transportation Ministries.

The Environment Ministry is slated to get the biggest increase in expenditures compared to 2007. Including EU funds, the ministry plans to see its spending rising 124.8 percent to reach Sk7.828 billion.

Foreign Affairs is the only ministry to see its budget shrink. It should get Sk3.5 billion, a 0.4 percent drop compared to 2007.

While Fico says his budget is socially-spirited and euro-oriented, one economic think-tank, the Institute for Economic and Social Reforms (INEKO), said that the new draft budget reflects the governing parties' broken promises.

The government does not pour much more money into social affairs and the development of education, which is necessary for the standard of living to improve over the long term, Eugen Jurzyca and Peter Goliáš wrote in an INEKO release.

"I would not say that new budget proposal is very socially oriented," said Juraj Valachy, an analyst with Tatra Banka. "It has some features, like lower VAT for some medicines, but it is not a revolutionary reorientation."

The EU funds provide a big opportunity for Slovakia to make massive investments into infrastructure, education and R&D, and it will be up to the government to make the most of it, Valachy told The Slovak Spectator.

When asked about the social aspects of the budget, Šmál said each ministry is responsible for the distribution of its own funds.

"As far as the Finance Ministry is concerned, we have allocated funds for housing support," he told The Slovak Spectator.

That includes subsidising mortgage loan interest rates for young people with lower incomes, supporting home savings bank services, and supporting the State Fund for Housing Development, Šmál said.

Budget meets euro target

Before the draft budget announcement, all eyes were on the sum appearing in the projected deficit column. Slovakia is required to keep its public finance deficit below three percent of the GDP to meet the Maastricht criteria for adopting the euro

"Slovakia has not had a deficit this low in the last 10 years," Finance Minister Ján Počiatek told the media after the cabinet approved the draft.

The budget was crafted with an eye to meeting the Maastricht criteria, ensuring the long-term sustainability of public finances, and maintaining the country's commitment to the Stability and Growth Pact and Slovakia's Convergence Programme, Šmál said.

The Stability and Growth Pact (SGP) is an agreement by EU members related to their fiscal policy conduct, in order to keep the Economic and Monetary Union (ie. the eurozone) in healthy shape. New member states must meet the Maastricht criteria and the SGP through their convergence plans.

Market watchers seem to agree that the government worked hard to trim the deficit.

"The government wants to have a budget that complies with the Maastricht criterion," Tatra Banka's Valachy said. "The deficit is 0.5 percentage points of the GDP lower than in 2007.

"From this point of view, the budget proposal is very good. The deficit is gradually decreasing towards three percent of the GDP."

On the other hand, the spending structure is focused more on the immediate consumption side, especially farm subsidies, Valachy added.

GDP growth is high, as are tax incomes, so the government could be more willing to make higher deficit cuts, he said. But if they stick to the 2.3-percent deficit in 2008, it will be fine.

With files from Marta Ďurianová

Draft budget expenditures by ministry for 2008-2010
Ministry Budget Change from 2007
Education Sk55.494 billion +8 percent
Labour Sk52.9 billion +2.1 percent
Health Sk33.7 billion +12.1 percent
Defense Sk31.1 billion +9.4 percent
Transportation Sk30.9 billion +13.5 percent
Foreign Affairs Sk3.5 billion -0.4 percent
Environment Sk7.828 billion +124.8 percent
Agriculture Sk29.091 billion +60.3 percent
Finance Sk10.766 billion +25 percent
Culture Sk5.115 billion +25 percent

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