Incoming finance minister warns deficit target will not be met

Say goodbye to the dream of a 5.5-percent public finance deficit this year: that is one of the first clear public messages from Slovakia’s new finance minister, Ivan Mikloš, who has returned to the job after a four-year gap. Mikloš was in part responding to comments made last week by his predecessor, Ján Počiatek, who left office saying that the 5.5-percent deficit target he had set is realistic provided the new government “practice what they preach”.

Finance Minister Ivan MiklošFinance Minister Ivan Mikloš (Source: ČTK)

Say goodbye to the dream of a 5.5-percent public finance deficit this year: that is one of the first clear public messages from Slovakia’s new finance minister, Ivan Mikloš, who has returned to the job after a four-year gap. Mikloš was in part responding to comments made last week by his predecessor, Ján Počiatek, who left office saying that the 5.5-percent deficit target he had set is realistic provided the new government “practice what they preach”.

Mikloš’s estimate, by contrast, is much closer to what market watchers have been forecasting over the past couple of months: instead of reaching 5.5 percent of GDP, he says, the deficit could climb as high as 7 percent in 2010.

“The predicted [5.5-percent] deficit is an illusion,” Mikloš, a nominee of the Slovak Democratic and Christian Union (SDKÚ), said. “The Finance Ministry under the leadership of Počiatek has already published [data showing] that the shortfall in tax and payroll tax [revenue] will be €1 billion deeper than they had assumed when designing the budget with a 5.5-percent deficit.”

Mikloš also said that it is necessary to assume further unforeseen expenditures, for example money to help struggling municipalities or to cover damage caused by the heavy flooding which hit parts of the country during May and June.

The shortfall in income tax revenues has seriously affected Slovakia’s municipalities, which depend on these for almost all their income. Some towns and villages have already warned that they may have to stop paying bills or even start laying off their employees. Earlier in July, Mikloš said that his ministry is open to discussion about central government assistance to cover municipalities’ shortfall, but he has remained tight-lipped about the eventual sums involved.

However, Mikloš has argued that the problems facing towns and villages cannot be attributed entirely to the economic downturn or the floods, but also to what he called the “irresponsible administration” of the previous government. He also has said that the Slovak Association of Towns and Villages (ZMOS), the main body representing municipalities, should have played a more active role in resolving the problems, the SITA newswire wrote.

The municipalities estimate that they may need a cash injection of up to €141 million to compensate for the shortfall in their budgets caused by lower tax collection. ZMOS leader Michal Sykora has confirmed that the sum corresponds with the expected shortfall in tax revenues in 2010.

However, Počiatek said early in July, as he was leaving the Finance Ministry, that “we are not leaving the treasury empty”.

“I’ve accumulated €300 million in one account by putting together all the reserves we had and now they [the new government] can use it on whatever they want,” Počiatek said on July 7, after the government of Prime Minister Fico resigned following the loss of its majority in the June 12 general election.

Mikloš has since responded that he knows nothing about any reserve, only about huge debts in the public finances.

On July 14 Mikloš said that his government would come up with a plan to consolidate the public finances.

“However, we are already in the second half of the year and considering the real legislative changes [required], the government will be able to carry them out in the autumn at the earliest,” Mikloš said. “[Even] then the room is quite narrow.”

Some analysts have said that the new government will face a gigantic challenge in bringing Slovakia’s rapidly growing public debt under control – a task which will require some drastic government belt-tightening.

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