Discussions between Deputy PM Mikloš and Finance Minister Schmögnerová seem to have borne fruit.
Speaking immediately after the government approved the draft, Prime Minister Mikuláš Dzurinda said that the cross-ministerial backing for the bill meant it was now unlikely to have a troubled passage through parliament.
"The draft was approved by consensus. This suggests that the proposal will also be approved in parliament with the support of ruling coalition MPs," said Dzurinda. The draft must be submitted to parliament by October 15 at the latest, but is expected to be included in this month's session.
A compromise on taxes was believed to have cemented support for the draft. A recent row between Finance Minister Brigita Schmögnerová and Deputy Prime Minister for Economy Ivan Mikloš over a series of tax cuts was diffused when ministers agreed to search for a way to offset potential revenue losses from the lowered tax rates.
The cabinet on August 20 approved a package of tax reductions, proposed by Mikloš, that would include reducing corporate income tax from 29% to 26% as of January next year, and to 18% by 2006. Schmögnerová warned that the cuts would put dangerous pressure on the revenues side of the budget, and it was expected that she would push for cuts in expenditures to compensate.
However, after the cabinet meeting she said that coalition members were working on a way to reduce the risk to revenues, adding that a compromise solution to the tax issue was being searched for.
Draft generally welcomed
The budget draft, which has been calculated on an assumed 3.6% rate of GDP growth, 6.7% annual headline inflation and 18.9% average unemployment, plans revenues of 218.9 billion crowns ($4.38 billion) and expenditures of 255.9 billion crowns ($5.12 billion). There will also be an extra 4 billion crowns provided for highway construction and 1 billion for construction of apartments.
Economists have long argued that more housing needs to be built across the country to relieve what they term an acute housing shortage that is reducing labour mobility. The construction industry has also been relatively stagnant since the Dzurinda government curbed an ambitious highway construction programme launched under the previous administration.
Dzurinda called the 2002 budget draft one which "should not provoke fear of any hidden debts," and one which "creates conditions for sound economic growth and a stable currency".
In aiming for a target for the general budget (which includes municipal budgets, the budget of the National Labour Office, the state privatisation agency National Property Fund [FNM] and various off-budget funds) of 3.5% of GDP, the government is fulfilling one of the conditions of an International Monetary Fund (IMF) Staff Monitoring Programme. The programme is itself a condition of a 200 million euro loan extended to Slovakia in August by the World Bank.
Slovakia must also meet a budget deficit target of 2.5% of GDP before it can join the European Union, a body it hopes to enter in 2004.
Many local economists said the deficit figures proposed by cabinet were realistic goals. "The figures are achievable. The government is committed to [meeting] these for the EU and the IMF; they can't really not go ahead with them," said Pavol Pop, an analyst at Poštová banka.
He added: "There is no information yet on the exact compensation for the loss of tax revenues, just that a solution would be looked for. We're looking forward to seeing the proposed solutions."
The predicted relatively smooth passage of the bill would stand in sharp contrast to parliament's approval of the 2001 cabinet draft. At the end of November last year, many members of parliament balked at the cabinet-approved proposal, forcing Mikloš and Schmögnerová to broker a series of last minute agreements only days before parliament was due to start debating the government's draft. Some MPs proposed changes that threatened to add many billions of crowns to a 37.8 billion crown ($745 million) deficit.
The deficit then was 4% of GDP, again a limit advised by the IMF. Mikloš warned at the time that if the deficit were to rise above that figure it would put back the economic reforms which the Dzurinda administration had implemented since coming to power in 1998. After 10 days of tough negotiations, the government finally won over MPs and pushed its proposal through parliament, sticking to its original deficit.
Heated debate in parliament is again expected, analysts said. However, it is expected the headline figures in the draft will be passed into law.
"There will be discussion and debate in parliament, as there is every year. The [opposition Movement for a Democratic Slovakia] HZDS will probably oppose it, but the draft should be approved with the main figures standing as they are and the only changes, probably, coming in individual budget chapters," said Mario Blašeák, an analyst at 1udová banka.
Factoring in the SMK
The government will be keen to move the bill into law as quickly as possible, especially since the threat of the coalition ethnic Hungarian party (SMK) to leave the government over controversial state administration reforms.
While the SMK has backed the budget, it is unclear if the government could muster the required 76 votes to pass the bill into law were the party to leave while the budget is still in parliament. The loss of the Hungarians' 15 MPs would bring the number of parliamentary votes the coalition theoretically commands to 76, exactly the number required to pass laws.
However, with the support of some smaller coalition member parties and independent MPs looking increasingly unclear, political analysts say that the Hungarian party's backing will be crucial to the passage of the law.
"If the SMK were to leave the coalition this [budget support] would be a very tough situation. The [government's] majority is slim, and while independent MPs may vote with the government on some laws, it will be on a case-by-case basis," said Miroslav Kusý, professor of political sciences at Bratislava's Comenius University.
The SMK has said it will decide on its coalition status by the end of this month.
9. Oct 2001 at 0:00 | Ed Holt