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Murky off-budget 'funds' are abolished

A potential budget crisis was averted after members of parliament united to back the cancellation of a number of off-budget state funds.
Seventy-one of 113 MPs present voted December 6 to close nine funds as of the start of next year.
MPs also voted to cancel the state fund for housing development as of January 2003, while the fund for market regulation will be transformed into a state agency and the fund for the liquidation of nuclear facilities will not be closed.

A potential budget crisis was averted after members of parliament united to back the cancellation of a number of off-budget state funds.

Seventy-one of 113 MPs present voted December 6 to close nine funds as of the start of next year.

MPs also voted to cancel the state fund for housing development as of January 2003, while the fund for market regulation will be transformed into a state agency and the fund for the liquidation of nuclear facilities will not be closed.

Approval of the closure of the funds, identified in a government audit of state financing as a non-transparent drain on state resources, was a pre-requisite for passage of next year's budget.

Finance Minister Brigita Schmögnerová had warned just days before the parliamentary vote that 2002 would have to start with a provisional budget unless the funds were shut down.

"I'm now almost completely sure that the state budget will be approved and that from next year we will be able to start a normal fiscal year," the minister said after the vote.

She added: "We have taken an important step in the reform of public finance. All taxpayers should be glad because the funds taken from them by tax offices will be used more carefully.

"While meeting the same goals achieved by the state funds, it will now be possible to transfer the money from one year to another, control the use of the money and measure how effectively it is used."

An audit of state financing carried out by the government had identified the funds as non-transparent, poorly managed and spending inefficiently.

In 2000 alone the state fund for road management, singled out in the audit as one of the worst-managed funds, took loans from abroad independently of the state at interest rates many times higher than the state would have been charged.

Among the bodies to be abolished are environmental, agriculture, forestry and cultural support funds. After their cancellation their work will be transferred to individual ministries.

The government had also promised the World Bank, which this year extended a 200 million euro credit to Slovakia, that it would cancel the funds to improve budget transparency.

World Bank and IMF experts have long called for Slovakia to make its state financing clearer. One of the most important areas they identified for attention was the funds.

Slovakia's goal of meeting state financing control standards for accession to the EU, potentially as soon as 2004, as well as World Bank loan conditions, had demanded the closure of the funds. The government also agreed to a staff-monitoring programme from the International Monetary Fund (IMF) as part of the World Bank loan. One of the conditions of the IMF programme was that the funds were cancelled.

But it was only a week before the vote that Schmögnerová managed to secure an agreement from coalition party caucuses to support the move.

"This shows that intense discussions with MP caucuses can bring about good things," she said.

Economic experts said the move was crucial in improving long-term state financing transparency.

"Altogether the state funds had control of about Sk30 billion [$600 million] a year to distribute. But in some cases it was parliament and not government which was in control of them, so ministers sometimes couldn't make decisions on the funds.

"What was before a Sk30 billion black hole will now basically be gone, and taxpayers should be a lot happier because it will be clearer where their money is going," said Ján Tóth, an analyst at ING Bank.

He added: "In transition countries like Slovakia you have certain [criminal] groups which can benefit from having Sk30 billion in non-transparent funding. But the IMF staff-monitoring programme requested that the funds be cancelled, giving a benchmark which the government has met."

However, opposition MPs say the move will do little for businesses, which had grown used to state financial support.

"The cancellation of the funds will make our businessmen less competitive," said Peter Baco of the opposition Movement for a Democratic Slovakia.

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