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EDITORIAL

The true face of government

STATE budgets are probably one of the best snapshots of a government’s true face. The numbers often say more about political priorities than impassioned speeches, party manifestoes packed with utopian ideas or blacklists of public bogeymen. Far too often, promises are blown away by the cold autumn wind as soon as the final talks over the state budget near parliament.

STATE budgets are probably one of the best snapshots of a government’s true face. The numbers often say more about political priorities than impassioned speeches, party manifestoes packed with utopian ideas or blacklists of public bogeymen. Far too often, promises are blown away by the cold autumn wind as soon as the final talks over the state budget near parliament.

Yet, the outcome of budget negotiations often reveals the price tag for coalition partners’ loyalty. The public rarely sees what is happening behind the closed doors: what is being traded, who is getting what, and for how much in return.

Prime Minister Robert Fico has already decorated his latest draft state budget with superlatives: the most socially-oriented state budget, with the lowest possible deficit. Yet, this is also the first euro budget that the government will have to follow after joining the eurozone.

So what is Fico’s explanation for why observers, market watchers and economists feel that there is something rotten at the core of this budget? Fuelling their doubts is the impression that the proposed budget is designed as if Slovakia is protected by a bulletproof shield and can stroll through the crossfire of the ongoing global financial crisis unscathed. Slovakia had not, as of October 16, revised its official forecast of economic growth. The government has therefore drafted this budget based on the expectation of 6.5 percent growth.

Fico has called on all the political parties to turn the global financial crisis – which he compared to that of 1929 - and its potential impact into a principal issue. So it is puzzling why market watchers are unable to detect any trace of concern or allowance for the crisis in Fico’s ‘most socially-oriented budget of all time’.

The miracle budget assumes revenues of €13.222 billion (Sk398 billion), expenditure of €14.109 billion (Sk425 billion) and hence a deficit of €886.7 million (Sk26.7 billion). Compared with the August draft, the projected deficit has swollen by nearly €390 million, revenues by €193 million, and expenditures by €582.4 million.

And yet the Fico team is quite reluctant to reveal where and how they will find the €582.4 million for extra spending to quench the thirst of his partners in the ruling coalition while throwing enough crumbs to the voters in order to feed them without making them realise how hungry they are.

Yet, one potential well of money into which Fico hopes to plunge the siphon, according to local media, is the country’s pension system; specifically, the second or so-called capitalisation pillar which allows contributors to pay into privately-managed funds. Earlier this year, his government opened up the second pillar for six months, allowing people to return to the publicly-managed scheme.

This was accompanied by a massive campaign which involved comparing the pension fund management companies to pyramid schemes and revealing a “secret” video featuring one of the top managers of the funds dancing in a female wig, to pointing at the supposed dark cloud of crisis hanging over the heads of the clients of the second pillar. After, the government’s hoped-for mass exodus from the private schemes failed to materialise, Fico said that the system would be re-opened, this time for seven months.

Now Fico and his money managers hope that at least 150,000 people will quit and channel their money into the budget of the social security provider Sociálna Poisťovňa, which comes within the state budget.

With this suspicion in mind it is rather harder to believe in the government’s good intention to shelter people from crisis. Though Fico swears it is really so.

On October 15, the prime minister said that the pension pillar is to be opened because of the world crisis and not because of the budget.

“If we wanted to, 800,000 or even a million people would leave the second pillar,” said Fico, as quoted by the Hospodárske Noviny financial daily.

This reveals two potentially disturbing scenarios: that the Fico think government thinks it could do it; and that if it is even toying with the idea, one possible motive could be to get more money to spend for the ruling coalition.

On October 15, thirty-eight European economic policy organisations and think-tanks released a joint statement in response to the global financial crisis suggesting that the basic cause of the problem was that governments engaged in excessive credit expansion and pressured banks to make loans, particularly home loans, to unqualified buyers.

Slovakia’s INESS – the Institute of Economic and Social Analyses, the Conservative Institute of M.R. Štefánik and the F.A. Hayek Foundation signed the statement. In short, they believe, governments interfered in processes that should have functioned based on the principle of non-intervention.

What else does the budget snapshot reveals about the Fico government? It was adopted by the cabinet on October 15, the very last day, according to the law, by which a draft must be sent to parliament. In fact the main agreement about the budget was reached on October 14, at a meeting of coalition party leaders.

Fico made no secret of the fact that it was indeed a deal between political parties and that there would be no significant discussion at the cabinet session. Still, it is a sad prospect for Slovakia when people like HZDS leader Vladimír Mečiar and SNS chairman Ján Slota decide about state budgets in times of global financial crisis.


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