POLITICIANS and businesspeople, as well as analysts and market watchers, agree that Slovakia needs to do something to curb the deceleration of its economic growth. But their solutions are often diametrically opposed. The Slovak cabinet adopted a document outlining pro-growth measures on May 15. The business sector, whose input was incorporated into the document, mostly praised its adoption, while the opposition and economic analysts see it as a marketing tool that brings nothing new. The document remains open and will be further elaborated.
Economy Minister Tomáš Malatinský pointed out that Slovakia has never produced a government-drafted document of this nature.
“Also, there are only a few examples in Europe for us to draw inspiration from, but we have learned from these countries,” said Malatinský, as cited by the TASR newswire. “Similar material was drafted by Germany, Great Britain, Finland but also the Czech Republic. We have adapted it to our conditions.”
The purpose of the document, called Economic Policy Measures to Support Economic Growth, is to create specific measures to help solve the serious problems with Slovakia’s economy.
It is expected to produce tangible results as early as this year or next.
While Slovakia’s economy is one of the few in the EU that are still growing, its slow growth - below 1 percent - is far from the 3 percent cited as necessary for the economy to begin generating new jobs.
The document consists of four parts, the first of which outlines the economic priorities of the Fico government’s plan for its four-year term as the basic framework of the economic policy. The second part deals with the process of consolidation of public finances and the third is devoted to economic growth and employment. The final part describes individual measures, like faster and more effective drawing of EU funds, acceleration of highway construction, increasing employment in the least developed regions of Slovakia and supporting youth employment. There are also measures to make the public administration more effective, support development of vocational education and improve the quality of infrastructure.
The costs of all the measures proposed, excluding those in the so-called ‘pool’ of projects, are calculated at €6.6 billion, of which €1.7 billion should come from the state budget, €4.3 billion from EU funds and €651 million from other sources. Costs of the projects in the ‘pool’ are projected at €1.9 billion, of which €1.3 billion should come from the state budget.
According to Peter Goliaš, the director of INEKO, an economic think tank, the document reads like a marketing campaign, through which the government addresses interest groups or voters but does nothing to solve the problems of Slovakia’s economy. Goliaš identifies these problems as high payroll taxes for people with low incomes, the fast growing public debt and a lack of information about the quality and effectiveness of health facilities, schools and courts.
Radovan Ďurana, an analyst with the economic think tank INESS, considers the set of measures to be a summarisation of older proposals or measures, and said it does not bring anything new.
The impact that the government’s measures will have on increasing growth over the long term is low, Ďurana told The Slovak Spectator, adding that the government can increase growth only when it does less than what it is doing now, i.e. taxing less, creating fewer obstacles to doing business and hiring employees, and doing less harm to the business environment with low enforceability of the law.
Goliaš acknowledged the government for addressing in the document the high cost of electricity for businesses.
Businesses in Slovakia have been complaining about paying one third more than the EU average for electricity. While electricity as a commodity is being traded on the market at one fifth cheaper than last year, firms in Slovakia have not felt this decrease because of so-called systemic charges, which include subsidies for green energy, making up one half of the final electricity price, according to the Hospodárske Noviny daily. The cabinet wants the Regulatory Office for Network Industries (ÚRSO) to optimise the charges.
Ďurana praised efforts to reduce the administrative burden, but here he considers this to be a low priority for the government, explaining that “the government should allot it significantly more resources and time”.
With regard to negative aspects of the measures, Goliaš and Ďurana consider the intention to launch new funds to support businesses as harmful because there are fewer possibilities to oversee effective usage of money compared to when it comes from the state budget via standard processes.
“Instead of subsidising businesses, for example via soft loans or investment stimuli, the state should instead decrease taxes,” said Goliaš.
According to Ďurana, these funds create room for corruption and low effectiveness of the money spent.
Ďurana also criticised the group of measures intended to create jobs, pointing to the latest attempts at job creation in the transport sector, arguing that similar measures are either not used enough, or they deplete precious funds.
Views from the business sector
Businesses themselves mostly welcomed the adoption of the document, in which a number of their requirements were included, and called for realisation of the objectives set out.
“This is a quite fundamental positive move over the last few years,” Vladimír Soták, the chair of Klub 500, an association grouping owners and co-owners of companies employing more than 500 people, as cited by TASR. “I’m convinced that when the pro-growth measures are carried out, when they are fulfilled, this will certainly help.”
According to him, Slovakia has no option but to continue on the path of consolidation of public finances.
“On the other hand, Slovakia has to prepare pro-growth measures because we have EU funds only until 2020,” said Soták. “We have to start up the economy on real fundamentals.”
The Federation of Employers’ Associations (AZZZ) views the document positively.
“We acknowledge that the material has remained open,” Rastislav Machunka, the AZZZ president, said as cited by TASR. “It is flexible [enough] to respond to new information and new facts, which life will bring.”
He pointed out that this document also contains a requirement for evaluation of measures and their fulfilment, which is not usual in the case of such measures.
“Usually such papers were adopted but they were not implemented or put into practice very often,” said Machunka.
The cabinet has sent a positive signal to the business sector in promising not to further increase income and payroll taxes and fees. By the end of June it will sign a memorandum with representatives of entrepreneurs, in which the government pledges not to increase the tax and deduction burden. This point was included in the document at the request of businesses.
Malatinský does not rule out the reduction of taxes, recalling that the Slovak government’s need to consolidate public finances and squeeze the deficit below 3 percent was behind last year’s corporate tax hike from 19 to 23 percent.
The opposition says a reduction of taxes is missing from the proposed measures.
“I consider reduction of taxes to be a pro-growth measure,” former economy minister Juraj Miškov said during a discussion programme on Slovak Television, pointing out that, firstly, the Fico government increased taxes to businesses and then it told them that it would not increase them further. “I would be much happier if the cabinet obliges itself to reduce taxes for businesses, either to the original level of 19 percent or even lower in order [to make us] competitive again.”