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EDITORIAL

Rendering unto Caesar more than his due

The details of the cabinet's new economic package will not be known until December 16, but one thing is already clear: The state will look after its pocketbook first, and only then consider the needs of the economy and of business. Working folk will have to wait a month of Sundays until someone inquires after their health.
To recap, the main pillars of the package include price hikes for electricity, natural gas, transportation and groceries, tax increases and the re-introduction of an import duty. These measures are being driven by two imperatives - reducing the trade balance deficit and cutting the fiscal deficit of the state budget.

The details of the cabinet's new economic package will not be known until December 16, but one thing is already clear: The state will look after its pocketbook first, and only then consider the needs of the economy and of business. Working folk will have to wait a month of Sundays until someone inquires after their health.

To recap, the main pillars of the package include price hikes for electricity, natural gas, transportation and groceries, tax increases and the re-introduction of an import duty. These measures are being driven by two imperatives - reducing the trade balance deficit and cutting the fiscal deficit of the state budget.

If the economic package were cast in the light of a well-known Christian parable, one might argue that it is trying to pay homage and deliver revenue to two masters - an importunate and penniless Caesar (the state) and a neglected deity (the economy, represented by the trade balance deficit).

In the Biblical parable, Jesus advises people, economists included, to look after Caesar's basic financial needs, but to save their real wealth and inspiration for God. According to the Slovak cabinet's economic package, however, the state's fiscal needs are driving economic thinking, while the economy proper is treated almost an afterthought.

Peter Mihók, chaiman of the Chamber of Commerce and Industry, says the cabinet has considered imposing an import duty of up to 20% (see interview, front page). Such a measure would do little to address the underlying causes of the trade deficit (high consumption, low efficiency of the export sector) but would put a wad of cash in the state's hands very quickly.

The same goes for energy and transportation price increases. More money will flow in to the coffers of state-supported firms, but nothing will be done to restructure overstaffed transport companies or build housing for workers to live closer to factories.

What is behind this curious ordering of priorities?

The 1998 fiscal deficit itself - latest Finance Ministry estimates put it at around 16 billion crowns ($400 million) - is not cause for undue worry. At well under 3% of GDP, the budget shortfall is below the limit set for countries joining the EU's single currency regime.

But the problem is that the fiscal deficit can no longer be safely financed from foreign loans. Slovakia's current foreign debt stands at around $12 billion, or 60% of GDP. This is a dangerous level, as an IMF mission that visited Slovakia in November pointed out.

Hence, domestic sources must be tapped. And since tax gouging and price hikes are far cheaper than panhandling for funds on the money market, taxes and prices it will have to be.

Caesar, in Slovakia, cannot afford to be generous. He is under a ton of pressure from international financial institutions to earn more and spend less, and is something of a greenhorn to boot. But unless he moves soon to render the economy due care and attention, the health of his pocket book will be the least of his worries.

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