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Last Word: The fight for the ruined pension system

The Slovak pension system is slowly approaching deficit. With pensions at their current levels, the system's revenues cannot cover its expenditures. The pension deficit will, in the coming five years, amount to more than 50 billion crowns ($1.1 billion).
Depsite this figure, we noticed an interesting phenomenon last week - so many people came up with pension increase proposals that the bag containing them split. Politicians from all sides of the spectrum were trying to outdo each other in suggesting a higher pension rise. The proposals, eventually, came in at levels between 7 and 20%.
The most surprising proposal came from someone who suggested a higher figure - Peter Magvaši, the Minister for Labour, Social Affairs and Family, who on the one hand should have an eminent interest in how well social welfare instutions function because he is in charge of them, and on the other hand proposed a pension hike that would be one of the most destructive solutions for the social insurance company, Socialna poisťovňa.

The Slovak pension system is slowly approaching deficit. With pensions at their current levels, the system's revenues cannot cover its expenditures. The pension deficit will, in the coming five years, amount to more than 50 billion crowns ($1.1 billion).

Depsite this figure, we noticed an interesting phenomenon last week - so many people came up with pension increase proposals that the bag containing them split. Politicians from all sides of the spectrum were trying to outdo each other in suggesting a higher pension rise. The proposals, eventually, came in at levels between 7 and 20%.

The most surprising proposal came from someone who suggested a higher figure - Peter Magvaši, the Minister for Labour, Social Affairs and Family, who on the one hand should have an eminent interest in how well social welfare instutions function because he is in charge of them, and on the other hand proposed a pension hike that would be one of the most destructive solutions for the social insurance company, Socialna poisťovňa.

"Money has to be found somewhere," was the argument used to defend most of the proposals.

The minister's stance only confirms that Slovakia, 10 years after its transformation, is still living under the illusion that it's best to use the government to solve all problems. The problems are either put on the government's shoulders, or it is supposed that when the situation is at its worst the government will come up with a magic source of financing.

In the past decade in Slovakia, the state has played an active role in how capitalism was built. In the politicised privatisation process of the Mečiar years, many new business owners stripped the healthiest parts of their companies' assets while they let the costs of transition be borne by society - in the form of unemployment and indebted and unproductive companies. The future of these firms now has to be decided by the current government.

But even in the present economic climate, there is still a widespread expectation that the government should take responsibility for removing all risks from doing business. If it continues in this way, we will slowly have more companies with state guarantees on their loans than without them. These efforts, when defended in the media, are grotesque, as illustrated by a quotation from the previous week. "The government has to find the courage to release sources for development." As if we needed any more of the same 'courage' to distribute state funds.

This 'courage', which at the end of the day means that politics wins hands down over market forces, is at play also in the realm of social policy. The pension system is a significant example of this.

The pension system's projected deficit as a result of incompetent proposals for pension increases could be much higher. Moreover, the situation could get much worse if there isn't the will to change the basic parameters (the size of the payments, the age of retirement) of the pension system so that its basic shortcomings will be removed.

No pension increase will be healthy for the pension system (mainly because of its current condition). On the contrary, it will make pension reform complicated and may delay the beginning of reforms, while with every delay the costs of this reform increase.

So the latest mobilisation of politicians as regards the pension system has only one logical explanation: The pre-election campaign has started in Slovakia. New elections are supposed to be in 2002, but we already know the first loser - the pension system, which is on its back. It will be resuscitated only with the help of financial injections which will come from the pockets of the common tax-payer.


This article was written by Ján Oravec, general director of the strategy, legislation and support for business department of the Economy Ministry, and first appeared in the weekly Domino Fórum, vol. 9, 25 June 22 - 28

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