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LETTER FROM THE EDITOR

Just this once: The ethics of state spending

IT'S STRIKING how many economic decisions are basically ethical decisions, how the whole right wing/left wing approach to the economy boils down to how much claim we have to each other's money.
The Slovak government on April 24 is to debate some budget restrictions that could prevent the fiscal deficit from spiraling out of sight this year, as well as how to spend the proceeds from the sale of a 49 per cent stake in gas utility SPP.

IT'S STRIKING how many economic decisions are basically ethical decisions, how the whole right wing/left wing approach to the economy boils down to how much claim we have to each other's money.

The Slovak government on April 24 is to debate some budget restrictions that could prevent the fiscal deficit from spiraling out of sight this year, as well as how to spend the proceeds from the sale of a 49 per cent stake in gas utility SPP.

While there are sound economic reasons for urging the government to cut spending and use the privatisation money to pay down state debt, the ethical reasons for doing so are even more weighty.

After being contained in 1999 and 2000, the state budget is again expected to veer towards a staggering shortfall. European Union entry guidelines say that candidate countries should squeeze budget deficits to below three per cent of GDP. The 2002 Slovak deficit target was originally 3.5 per cent of GDP, but a Finance Ministry study released recently projected a possible 5.5 per cent deficit due to over-optimistic revenue expectations and election-year sloppiness on the expenditure side.

The economic logic behind cutting state spending is clear. Slovakia's current account deficit last year was over nine per cent of GDP, a figure the International Monetary Fund called "unsustainable". Higher government spending this year will simply put more money in circulation, money that will likely be used to buy more imports.

The ethical argument is less unambiguous, but still forceful. Voters may tolerate a government's running up a debt in an election year if that government has done what it set out to do in its term in office. On the other hand, a government which has been fiscally irresponsible has no moral claim to spend yet more public money to get itself re-elected.

While the Dzurinda government has undoubtedly been an improvement on its predecessor (which left public finances in a shocking condition), it has definitely not done enough to reform high-cost sectors like education, health care and social policy to warrant a free run through public coffers in 2002.

Fees for full-time and part-time university education, which in the long run are the only way to increase the quality of schools and the number of students they admit, have been flatly rejected. The external debt of the unreformed health care system - the amount of money owed by hospitals and health insurance companies to pharmacies, the state, health care and service providers - was Sk24 billion in June 2001, having risen by Sk8.76 billion in the previous 12 months alone. The debt of the public channel Slovak Television (STV) is Sk1.12 billion, after a loss of Sk265 million last year. Spending on social benefits may exceed even generous targets by Sk2-3 billion this year.

If the government loosens state spending further on April 24, it will thus not be a blip on an otherwise serene fiscal horizon, not a well-deserved cold beer after a hard day's work. It will bring the country dangerously close to a condition the IMF calls "macro-economic imbalance", after four years of increasing rather than cutting state spending.

In the same way, if the cabinet gives in to calls to spend the $2.7 million it got for a 49 per cent stake in SPP on 'development projects', it will be offending both economic and ethical logic.

While the original idea was to pay down as much as Sk95 billion in external state debt, and thus take some of the pressure off the budget, the FNM state privatisation agency in late March suggested only Sk19.7 billion of the total Sk130 billion go towards debt. The rest, the agency said, might be spent on things like building a tennis centre (Sk195 million), a student loan fund (Sk50 million - and why, if education is free?), a 'development project' for Slovak Radio (Sk123 million) and an 'innovation fund' for the Economy Ministry (Sk100 million).

Even worse, the FNM proposed pumping another Sk3.7 billion into the health sector to pay down debts (this black hole has already gobbled Sk15 billion of privatisation proceeds over the last three years, and the debt is still growing), and Sk4.4 billion into Slovak Rail, where charges have been laid in a case involving the allegedly illegal signing of $600 million in promissory notes by Slovak Rail Director Andrej Egyed.

Even as children we learn not to lend money to people who still owe us from last time, or to people whose incomes clearly don't match their spending habits. What the FNM is saying, then, is that we should ignore the dictates of common sense, that we shouldn't mind, just this once, if the government goes on a spending spree. The problem is that it's not just this once. The Dzurinda government has been pouring public money into leaky containers for almost four years, and ignoring calls to plug the worst holes. It has not earned the privilege to be generous with the money from SPP, the biggest and brightest state asset the country had to sell off.

It could be argued that the Dzurinda government should do what it must to get re-elected, and that it would little profit Slovaks to have the budget target met if it meant Mečiar's return in September. But it might also be said that a little fiscal responsibility wouldn't hurt the government's election chances, and that people are sick and tired of seeing public money wasted because politicians don't have the courage to fix the nation's problems.

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