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Education, transport get priority

THE ONE piece of legislation that always has the potential to bring the government to its knees has now been tabled before the cabinet of Prime Minister Iveta Radičová. Her ministers are now preparing to do battle in order to get the largest possible slice of the state budget cake for their departments. However, cash-hungry ministries and the opposition are not the only dangers facing the 2012 draft state budget. Given the shifting economic numbers of Slovakia’s largest trading partners, market watchers warn that the assumptions that the Finance Ministry used to construct the draft might have been too optimistic. The ministry in turn says it is ready to make any modifications that the changing economic climate might require.

THE ONE piece of legislation that always has the potential to bring the government to its knees has now been tabled before the cabinet of Prime Minister Iveta Radičová. Her ministers are now preparing to do battle in order to get the largest possible slice of the state budget cake for their departments. However, cash-hungry ministries and the opposition are not the only dangers facing the 2012 draft state budget. Given the shifting economic numbers of Slovakia’s largest trading partners, market watchers warn that the assumptions that the Finance Ministry used to construct the draft might have been too optimistic. The ministry in turn says it is ready to make any modifications that the changing economic climate might require.

The Finance Ministry is pitching its draft state budget as a roadmap for consolidation, with a budget deficit of €3.172 billion, €637.6 million lower than the deficit approved for this year.



The public finance deficit in 2012 should thus fall to 3.8 percent of gross domestic product, with the target being to reduce it further in 2013, to beneath the 3-percent eurozone limit set by the Maastricht Treaty. This year, the public finance deficit is expected to reach 4.9 percent of GDP.

In fact, at a cabinet meeting on August 17, ministers toyed with the idea of an even more radical consolidation of the public finances than the government had originally planned, with Finance Minister Ivan Mikloš confirming that his colleagues had demonstrated that they understood the need to cut the deficit.

“I have a good feeling from today’s discussion because no one doubted this priority; on the contrary, there were voices asking whether we are able to seek even faster reduction of the public finance deficit,” Mikloš said, as quoted by the SITA newswire.

Yet Mikloš said that despite this understanding, ministers have collectively lodged requests for money which far outstrip the possibilities of the budget. The education and infrastructure sectors will be treated as priorities, he said.

The 2012 draft state budget forecasts total revenues of €15.27 billion, representing an increase of more than 16 percent over this year’s estimated receipts. Expenditure, by contrast is expected to grow more moderately, rising by 8.8 percent compared to this year’s budget to reach €18.443 billion, SITA reported.

“I consider the plan to cut the budget deficit up to 2013 to be ambitious enough,” VÚB Banka economist Andrej Arady told The Slovak Spectator. “However, the basic macro-economic prognoses that the cabinet has built the state budget on now seems optimistic. It will take several months until the smoke clears and we see the real damage caused to the economy.”

Arady said that estimates for real economic growth seem inflated and a scenario of slow growth at 2 percent for next year seems more realistic to him. However, he said he is sure that the government is following developments and will re-evaluate the draft budget if necessary.

“The necessity to cut the budget deficit to 3.8 percent is very acute and the government in fact does not have room for hesitation,” Tatra Banka analyst Juraj Valachy told The Slovak Spectator.

If the economic situation allows it even a little, then the reduction in the budget deficit could be even more ambitious, Valachy said. He agreed that the estimates that serve as the basis for the budget calculations may be too rosy.

“The macro-economic assumptions on which the state budget is built are optimistic when seen through today’s prism,” said Valachy. “It would be desirable to update the assumptions and adjust the spending side to lower revenues even before the key vote in parliament.”

As for the potential risks hanging over next year’s plan, Valachy identified potentially worse development in the economy than the government expects. He warned that if this occurs, additional modifications on the spending side and the revenue side – by increasing some taxes – will be necessary to ensure that the country retains the confidence of the financial markets.

“This would be reflected in higher costs of financing for the state and subsequently also companies and inhabitants,” said Valachy.

The Finance Ministry has said that if the global economic situation calls for changes, the ministry will reflect actual developments in the draft budget for next year.

“The analytical team at the ministry very carefully monitors the situation, but after four days of volatility on the market it is premature to say what will happen,” ministry spokesman Martin Jaroš said on August 10. “If corrections become necessary, they will be made.”

The Finance Ministry has said that the draft put before cabinet includes the basic priorities of education and infrastructure, while other political priorities will be subject to further coalition talks over the next few weeks.

Valachy said that these budget priorities are right. However, he added that the judicial system should also be a priority, since the courts have long evoked concern among not just investors but also citizens.

“I consider tuning the priorities of the budget to infrastructure and education the right step towards a long-term increase in Slovakia’s competitiveness,” Arady said. “It is a good investment which will deliver a return to Slovakia’s economy, with interest.”



The numbers



The Defence Ministry will again get a smaller portion of spending, at least according to the draft. Total defence spending is set at 1.03 percent of GDP for 2012, compared to 1.11 percent of GDP this year, SITA reported. The department will see its budget cut by 0.72 percent, to €754.3 million. Defence Minister Ľubomír Galko said he would not resign over the proposed budget, but would try to fight for more cash for Slovakia’s armed forces.

The Ministry of Transport, Construction and Regional Development can expect to get €2.126 billion, a 12.9 percent increase on 2011. Of this sum, €1.911 billion is earmarked for the development of road and rail infrastructure. The Economy Ministry will see its budget shrink dramatically in 2012: it will get €209 million, as opposed to the €334 million it is receiving this year. The Finance Ministry proposes to achieve this reduction by a cut in investment stimuli and support for businesses.

The Labour Ministry will get 2.37 percent less than this year, receiving €1.96 billion. The most generous package will go to the Education Ministry, which will have €2.434 billion to spend in 2012, a 4.8-percent increase compared to 2011.


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