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1999 state budget sets sober fiscal, tax goals

According to preliminary figures released by the Finance Ministry, the state budget for 1999 will set lower targets for both income and expenditures than its 1998 predecessor, and is counting on a 15 billion Sk ($417 million) fiscal deficit. Economic analysts say these modest goals are a welcome sign that the state is serious about tightening fiscal policy after the excesses of the Mečiar administration.
Finance Minister Brigita Schmögnerová presented an outline of the budget at a press conference on December 29. Budget income is projected at 175 billion Sk ($4.86 billion) and expenditures at 190 billion Sk ($5.28 billion). Budgetary revenues for 1998 were 177.8 billion Sk, while expenditures were 197 billion Sk.

According to preliminary figures released by the Finance Ministry, the state budget for 1999 will set lower targets for both income and expenditures than its 1998 predecessor, and is counting on a 15 billion Sk ($417 million) fiscal deficit. Economic analysts say these modest goals are a welcome sign that the state is serious about tightening fiscal policy after the excesses of the Mečiar administration.

Finance Minister Brigita Schmögnerová presented an outline of the budget at a press conference on December 29. Budget income is projected at 175 billion Sk ($4.86 billion) and expenditures at 190 billion Sk ($5.28 billion). Budgetary revenues for 1998 were 177.8 billion Sk, while expenditures were 197 billion Sk.

"At 190 billion crowns, the 1999 expenditure target is 5% below that for 1998 in nominal terms," said Martin Barto, a senior analyst with ING Barings investment bank. "But in real terms, when you take inflation into account, it is quite significantly lower. This is a good signal."

The ministry is planning a fiscal deficit of 1.6% of GDP, down from the current 5.5% and in line with recent recommendations by the International Monetary Fund (IMF). The state budget draft assumes 3% GDP growth for 1999, inflation from 9 to 10%, and unemployment of about 15% (see chart for comparison to figures from previous years).

The Finance Minister also said that public sector wages would be frozen and capital expenditures from the state budget would be reduced. Spending cuts would hit all departments, the minister said, but education, health care, and housing construction would be the government's top priorities concerning financing.

In terms of revenue, the budget draft counts on higher financial transfers from state monopolies (such as gas distributor SPP) to the state budget. The government also wants to reassess guarantees it provided on some corporate loans and restructure the state debt.

"These added transfers from state firms will reduce their investment activities for some time," said Barto. "However, the activities of these companies will also become more transparent. State companies have been known for doing funny things in the past, and less cronyism at SPP and [state insurance giant] Slovenská Poisťovňa will help."

Revenues will also be enhanced in the budget draft by legal changes - revisions to the Tax Administration Act and the Commercial Code - that are intended to improve tax collection. "In past years, projected tax revenues, especially for VAT, were much higher than reality," Barto began. "There were two reasons for this: first, they used bad assumptions, and secondly, their collection process was not very good."

Schmögnerová went a step further at a January 4 press conference, announcing that 1999 would be a year of increased attention to tax collection. About 38 billion Sk ($1.1 billion) in taxes are currently in arrears, of which figure 9 billion Sk were added in 1998 alone.

"We can't allow the rules of the previous [Mečiar] regime to continue to apply - that if you aren't stealing from the state, you're stealing from your family," Schmögnerová vowed. A brigade of tax investigators would be formed, she said, and tax evasion would become a criminal offence through an amendment to the Criminal Code.

In other budget draft changes, the government wants to restore the original housing construction savings system, and to introduce a system of subsidies for mortgage loans to promote housing construction.

The Finance Minister also announced organizational changes at the ministry, among others the establishment of a separate department for state debt management as well as a department for the management financial markets. This latter unit will be tasked with supervising banks, insurance companies and the capital market, and will be founded on January 15.

The new government that emerged from elections in September was unable to prepare a regular state budget for 1999 because it only took office on October 30, and the state budget draft should have been submitted to Parliament for approval by November 14, which was impossible for time reasons. A provisional budget will thus be used in the first quarter of 1999, which means income and spending according to the approved and revised budget for 1998.

SITA contributed to this story

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