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GOVERNMENT PLEDGES TO REDUCE THE STATE BUDGET DEFICIT

Draft budget for 2004 on the table

ON AUGUST 27, Finance Minister Ivan Mikloš presented to the government a draft state budget for next year; in many aspects, it was different from all previous budget drafts. A number of the proposed changes have to do with the country's EU accession, planned for May 2004.
The right-wing government, which came to power after the parliamentary elections in September 2002, has pledged to reduce the state deficit, and this year the very approach to putting the budget together marks a clear shift toward making that promise come true.

ON AUGUST 27, Finance Minister Ivan Mikloš presented to the government a draft state budget for next year; in many aspects, it was different from all previous budget drafts. A number of the proposed changes have to do with the country's EU accession, planned for May 2004.

The right-wing government, which came to power after the parliamentary elections in September 2002, has pledged to reduce the state deficit, and this year the very approach to putting the budget together marks a clear shift toward making that promise come true.

"This year's talks about the state budget are different from what they had been in previous years," said Mikloš at a press conference.

"The government is now debating the possible increase of the deficit by funding from [state] reserves intended for priority programmes and the lack of spending cuts. Before, the draft budget was being submitted to the government with a higher deficit than was necessary and only then cuts were being made," said Mikloš.

Now, the basic needs of the state bodies were given priority, and the government is only debating how to best allocate the Sk5.1 billion (€122 million) that makes up the reserves that can still be distributed. Total revenues for the year are estimated at Sk249.2 billion (€5.9 billion), with total expenditures reaching Sk310.7 billion (€7.4 billion).

Other members of the cabinet had previously demanded additional funding amounting to as much as Sk29 billion (€691 million).

"We have managed to bring that figure down to around Sk13 billion (€310 million). But that's still too much," said Mikloš. Under the current situation, there is still a Sk8 billion (€191 million) difference between the amount asked by the ministries and the sum that is up for grabs.

Among those most keen on getting more finances was Agriculture Minister Zsolt Simon. He said he wants the sum of direct payments given by the EU and the finances provided from the state budget to Slovak farmers to reach 55 percent of the average amount paid to farmers in the current EU member countries.

That can only be achieved through increased budgetary spending. According to the Finance Ministry's initial proposal, the total sum received by farmers was to equal only 40 percent of the EU average.

"Every additional five percent means an additional Sk760 million (€18.1 million)," said Mikloš. He went on to say that as much as Sk2 billion (€48 million) would therefore be needed to meet Simon's demands.

"It's logical that I ask for these additional payments to our farmers, because they will not be able to survive on a common market under different conditions than their colleagues in their immediate proximity," said Simon after the government's meeting and added that he will not change his position.

The governments of Poland and Hungary have already agreed to pay supplementary payments amounting to 25 percent, meaning farmers in those countries will reach 55 percent of the average EU mark.

A new round of talks on the budget is scheduled for September 10, when the Finance Ministry will submit a new draft. The budget is to be finalised by September 17.

However, none of the ministers have questioned the Finance Ministry's aim of keeping the state deficit for 2004 at a level of 3.9 percent of the GDP, according to Mikloš. The figure has a substantial impact on the country's hopes to introduce the euro.

Apart from joining the EU, the government has also declared its desire to soon join the European Monetary Union.

By keeping the deficit at the planned levels in 2004, the government would "create conditions for reducing the public deficit under the level of 3 percent of the GDP by the year 2006, whereby Slovakia would [be able to] meet one of the most important criteria for the introduction of the euro by around the year 2008", said Finance Minister Mikloš.

EU membership will also mean that Slovakia will have to make payments into the common EU budget and in return will also receive payments.

Although Slovakia as a whole will gain by entering the EU, from a narrow perspective of public finances, the deficit of the Slovak state budget will in 2004 increase by Sk1.6 billion (€38 million) as a result of Slovakia's EU entry, according to the ministry's position paper.

The Slovak government also plans to provide co-financing for projects running under the EU's structural funds. It has also allocated Sk7.6 billion for such activities in the draft budget for next year.

However, the reduction of the deficit will not result only from cuts in the state's spending.

"At the start of the year we will see important changes in the tax system as well as the last phase of significant increases of regulated prices," reads the Finance Ministry's position paper on the draft budget.

A unified 19-percent tax rate is to be introduced for both VAT and income tax. The VAT rate on most products has so far been 14 percent and the increase will be reflected in higher end prices.

The Office for the Regulation of Distribution Networks has proposed that the prices of electricity, heat, water, gas, and sewage be increased in 2004.

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