THE GOVERNMENT of Robert Fico suffered a serious headache in August when it learned that Slovakia’s state coffers were even more depleted than expected, primarily due to a shortfall in tax revenue, and that there was an extra €233 million gap to fill if it wanted to push the public finance deficit under 3 percent of GDP next year, as required by Slovakia’s EU obligations. Yet, the latest news, which was urgent enough to make Finance Minister Peter Kažimír deliver it to Fico during his trip to Romania, suggests that the condition of the budget is even more serious, with yet another €250 million gap to fill in 2013 if deficit targets are to be met. The Finance Ministry estimates that the state will collect €276 million less than originally expected through levies and taxes this year. These developments put the goal of public finance deficit at 4.69 percent of GDP for 2012 on very thin ice, according to the Finance Minister.
“These new numbers seriously threaten meeting this aim,” Kažimír said as quoted by the SITA newswire. “We are getting into a very complicated situation and again I have no other choice than to use the emergency brake, which is spending.”
However, the minister remained tight-lipped about specific measures, while admitting that the government also faces a serious time constraint since there is only slightly more than one month left until the end of the year.
Nevertheless, Kažimír also said that the 3-percent deficit target for 2013 remains in place.
“This is the obligation, which we will honour,” Kažimír said.
Kažimír attributes the budget gap complications to the worsening macro-economic developments as well as a discrepancy between the development of the economy and the collection of value added tax. This year the collection of corporate income taxes has been worsening as well.
Prime Minister Fico sent out a message on November 28 to businesses, suggesting that the hole in the budget should not be filled by additional tax hikes.
“We do not expect at the moment that we would want to walk the road of introducing new measures; there will instead be measures directed within the state,” Fico said, as quoted by the SITA.
Impacts on the budget
Fico suggested that once all the tax laws go through parliament, analysts with the Finance Ministry should present new tax and payroll tax prognoses, which also should serve as a guideline for modifications to the draft state budget for next year. He admitted that the parliamentary debate on the draft state budget, which should still pass easily given Fico’s overwhelming majority in parliament, might therefore be delayed.
Parliament must pass the state budget by the end of the year, otherwise a provisional budget will be applied and the public administration will have to function according to the 2012 plan.
“I hope that we will be able to start the budget talks next week [December 3-7], but we need to have more specific numbers so that we know what all of this means for next year’s budget,” Fico said as quoted by SITA.
When introducing his state budget in October, Fico described it as an “absolutely realistic” plan, which guarantees Slovakia a position at the core of the eurozone. The budget targets a deficit of €3.06 billion for 2013, €616 million lower than the €3.675-billion budget deficit planned for 2012. Revenues are planned to equal €14.177 billion, €552 million higher than this year, while spending compared to 2012 will be curbed by €65 million, to stand at €17.235 billion. The government is thus aiming for a public finance deficit of 2.9 percent of GDP in 2013, 2.4 percent in 2014, and 1.9 percent in 2015, the TASR newswire reported.
The Finance Ministry has been working on the assumption that Slovakia’s economy will grow at a pace of 2.1 percent next year while expecting unemployment to remain at its 2012 level of 13.9 percent.
Head of the Financial Policy Institute (IFP), which is connected to the Ministry of Finance, Martin Filko, told the Sme daily that in the IFP macro-economic prognosis negative risks prevail over positive ones and thus the institute might downscale its prediction for economic growth.
The National Bank of Slovakia (NBS) has also spoken in a similar tone.
The NBS said in its analysis of the draft state budget, published on November 28, that it detects several risk factors related to the proposed consolidation measures, both on the side of state revenues and of expenditures over the next three years, TASR reported.
The NBS calculated the risk in the sphere of income imposed by worsened macro-economic prospects to reach around €160 million, and that expenditures may grow by €426 million next year.
“Taking into consideration the budget reserves as well as the scenario of the NBS on the departure of contributors from the second private pension pillar, the fiscal risk of [not] sustaining the deficit represents €136 million, or 0.2 percent of GDP,” the central bank estimated in its analysis, as quoted by TASR.