Tax data delayed till after election

SLOVAKIA’S moment of truth about the condition of its state finances will arrive only after the parliamentary elections. Despite much prodding by the media, economists and the opposition, Slovakia’s Finance Ministry will not release its forecast for tax collection before June 12, leaving voters guessing about the actual condition of the budget and the spending gap.

SLOVAKIA’S moment of truth about the condition of its state finances will arrive only after the parliamentary elections. Despite much prodding by the media, economists and the opposition, Slovakia’s Finance Ministry will not release its forecast for tax collection before June 12, leaving voters guessing about the actual condition of the budget and the spending gap.

The forecast had been expected in the spring, soon after the March 31 deadline for annual tax payments, but has now been delayed until after the general election.

Observers have interpreted the ministry’s timing as a political decision, and say it is particularly unfortunate given the current uncertainty across Europe prompted by the precarious state of public finances in many countries.

The ministry denied tampering with the date of the data release to suit the election needs of the government, suggesting that “turbulences in economic development” had led to the delays.

Even without being given all the numbers, market watchers say that the government is unlikely to meet its 2010 deficit target of 5.5 percent of GDP unless some fundamental measures are taken.

The Club of Economic Analysts (KEA) estimates a “status quo” deficit of 7.4 percent of GDP for 2010, club chairman Ján Tóth said in an official statement. Surveyed members of the club assumed that spending-related measures will not be enough for a sustainable reduction in the deficit, and thus reforming taxes and payroll taxes will be necessary in order to increase revenues, Tóth has said.

Meanwhile, the opposition Slovak Democratic and Christian Union (SDKÚ) said that the coffers were completely empty.

“No one of us really knows in what condition our public finances are; what are the tax prognoses; we do not know in what condition the next government will take over the country,” SDKÚ election leader Iveta Radičová said on June 6, as quoted by SITA newswire.

The Finance Ministry will now release its tax collection prognoses one week after the parliamentary elections at the earliest, Finance Ministry State Secretary František Palko told the Hospodárske Noviny financial daily.

Radovan Ďurana of the INESS economic think tank said he assumed the delay was a political decision.

The state of the public finances has been significantly affected by the approved state budget, which increased government expenses by 15.2 percent compared to the previous budget, Ďurana told The Slovak Spectator.

“Since tax and non-tax revenues of the budget are, to date, lower than last year, this contributes continuously to the creation of a high deficit, which at this point exceeds €2.5 billion,” said Ďurana. “This deficit is only a preliminary value; it can change in three weeks if there is an increase in budgetary income from taxes collected from legal entities, or if the drawing of EU funds finally improves.”

Public spending increased by one third in the first quarter of 2010.

“To a large degree this flows from the approved state budget, which inflated spending by 15 percent [compared to the previous year],” Ďurana said. “The growth of debt pushes up interest payment expenses, while a new item of subsidy for the social insurer has been added, which means an additional €0.6 billion in expenses for a five-month period, rising to €1.5 billion by the end of the year, and transfers to EU budgets have increased as well.”

According to Ďurana, since the Finance Ministry is not publishing detailed figures on the ongoing drawing of EU funds, it is impossible to say whether the factors he listed above were the only reasons for the rapid growth of expenses in the first quarter.

As for the real public finance deficit for 2010, Ďurana said that the final numbers will depend heavily on fulfilment of the budget’s income targets “because based on our experiences last year we can tell that there will be no significant savings in expenses. Moreover, based on the statements of [Finance Ministry State Secretary] Palko, it was not possible to prepare a more economical budget.”

“The development of tax income suggests that the final deficit might be higher, exceeding 6 percent,” said Ďurana.

If Slovakia wants a balanced budget, it will need another five months added to this year so that taxpayers have time to pay taxes equal to the planned deficit of €3.75 billion, an INESS analysis concluded. The think tank assumes that the government will spend one-third more than it collects in revenues.

It is already clear that the next government will have to take some precautionary measures in order to consolidate the public finances.

“Slovak public finances need, first of all, systematic changes in the area of obligatory finances, such as in the area of public administration,” said Ďurana. “The new government will most probably not be able to adopt these changes by the end of 2010. We thus assume that there would only be minor operational savings.

Almost all of the KEA members view reform, particularly of the first pillar of the public pension system – the pay-as-you-go element – as being urgent, and say it should not be delayed. Despite Slovakia’s level of public debt being relatively low compared to the rest of the EU, KEA members put the country’s credit risk at average, Tóth said.

The surveyed members estimated that the probability of Slovakia ending up like Greece by 2011 is 26 percent.

The budget deficit increased to €2.078 billion at the end of May after standing at €1.480 billion at the end of April, the Finance Ministry reported on May 31. At the same point last year, the deficit had reached €832 million. The deficit for the whole of 2010 is now projected to reach €3.746 billion, the TASR newswire wrote.

According to the ministry, budget revenues to May reached €3.958 billion, or 31.6 percent of the projected €12.531 billion for 2010 as a whole. State expenditures were €6.036 billion, or 37.1 percent of the projected amount for the whole year, €16.277 billion.

According to the public administration budget for 2010-2012 passed by parliament in November 2009, the deficit should be reduced to 5.5 percent of GDP this year, to 4.2 percent in 2011, and below the 3-percent threshold set by the European Union in 2012.

Based on confirmed preliminary estimates, Slovakia's general government deficit stood at 6.8 percent of GDP last year.


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