State coffers in better shape

SLOVAKIA’s state coffers are in their best condition since 2000. Last year the state budget deficit dropped to Sk23.53 billion (Ř706,000), Sk15 billion lower than originally planned.

SLOVAKIA’s state coffers are in their best condition since 2000. Last year the state budget deficit dropped to Sk23.53 billion (Ř706,000), Sk15 billion lower than originally planned.

Market watchers said the results boost Slovakia’s chances of keeping its public finance deficit under three percent of the country’s GDP, which is crucial for meeting the Maastricht criteria for euro adoption.

Economic growth, better tax incomes and responsible economic policy are to thank for the result, Finance Ministry spokesman Miroslav Šmál told The Slovak Spectator.

“The better-than-expected budget results are a good signal for investors and the European Commission, which will be assessing the country’s readiness to adopt the euro,” Šmál said.

The government’s budgetary performance improved by Sk8 billion from 2006. The jump is attributed to budget revenues of Sk322.22 billion as of December 31, 2007. The revenue total was projected to be Sk310.472 billion.

And while the state had planned to spend Sk348.858 billion in 2007, the actual budgetary spending at the end of the year stood at Sk345.748 billion, the SITA newswire wrote.

“The (budget performance) outcome is chiefly the result of some unused spending, particularly linked to the EU funds and some other capital expenditures,” said Lucia Šramková, senior economist with the ING Bank. “It is also partly thanks to better-than-expected tax collection, and corporate tax income.”

The results suggest that the full-year public finance deficit based on the ESA methodology, which is pivotal for euro adoption, may end up very close to 2.4 percent of the GDP, according to Šramková.

“Including the performance of the National Highway Company into the budget would add some 0.2 percentage points to the deficit, so there would still be a big buffer zone under the three-percent Maastricht fiscal criterion,” Šramková said.

The probability of Slovakia adopting the euro on January 1, 2009 has increased to 83 percent from the previous level in the 70-percent range, Šramková added.

Tatra Banka analyst Robert Prega said the higher revenues are not that surprising given the robust growth of the Slovak economy and the business sector, along with a swell in their revenues.

“One of the factors could have been the stockpiling of cigarettes and tobacco products before the end of the year due to concerns coming from the increase in excise taxes, but the effect has not been as strong as we experienced at the turn of 2005 and 2006, when the excise taxes increased,” Prega told The Slovak Spectator.

The budget’s positive deviation from the plans has not been that out of the ordinary, he said.

“2007 was simply the year of the highest economic growth, and it is probably more challenging to plan than during times of average economic growth,” he added.

The fact that the government managed to contain the deficit confirms that the mid-term plans, which call for the consolidation of the public finance deficit, have been met, Prega said.

“However, the lower deficit is only an indicator that does not say anything about the quality of, let’s say, the spending side,” Prega said. “But it is good that Slovakia is continuing this trend of pushing the deficit down. Although in times of such an economic growth, it should not be that painful.”

Gains and losses

Total revenues in the 2007 state budget were 10.4 percent higher than in 2006. Revenue from tax collection was higher than expected for all tax categories. It earned the government Sk258.239 billion in 2007, compared to the planned Sk248.007. Non-tax revenues reached Sk23.549 billion, the SITA newswire wrote.

Revenues from grants and transfers stood at Sk40.433 billion, below the budgeted Sk43.207 billion, due to lower-than-expected incomes from the EU budget. The actual revenues from the EU budget stood at Sk25.592 billion, but it was expected to be Sk29.082 billion.

Total state budget expenditures for 2007 grew 6.8 percent over the previous year. Current expenditures reached Sk310.605 billion, which was Sk13.69 billion less than planned. Capital expenditures were budgeted at Sk38.253 billion, but that figure was exceeded by Sk10.58 billion.

The law on the state budget for 2008 marched through parliament on December 5 untouched by the opposition’s amending proposals. Of 146 MPs, 85 voted for the budget and 61 opposed it. The budget was passed in the way cabinet approved it on October 11.

The Fico team celebrated the coffer plans as a historical success. But critics said it was a missed chance to take advantage of the country’s economic vigour.

The budget for 2008 projects a deficit of Sk31.981 billion. Budget revenues are projected at Sk348.2 billion with expenditures planned at Sk380.2 billion.

The public finance deficit – which includes the budgets of the Sociálna Poisťovňa social insurer, pension reform expenses and local administration costs – is projected at Sk46 billion, 2.3 percent of the GDP. That is below the three-percent Maastricht criterion.

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