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Draft budget sparks debate

FREE trains for students and seniors or wages for scientists? Which is more important?Prime Minister Robert Fico’s government has made their choice as students and pensioners are set to travel for free, a decision that will cost the state budget about €13 million, a number similar to the sum by which the state is going to reduce the budget of Slovakia’s biggest scientific institution, the Slovak Academy of Sciences (SAV) for 2015. The scientists are letting it be known they are none too happy with the decision.

FREE trains for students and seniors or wages for scientists? Which is more important?
Prime Minister Robert Fico’s government has made their choice as students and pensioners are set to travel for free, a decision that will cost the state budget about €13 million, a number similar to the sum by which the state is going to reduce the budget of Slovakia’s biggest scientific institution, the Slovak Academy of Sciences (SAV) for 2015. The scientists are letting it be known they are none too happy with the decision.

Low-wage workers will see reduced health insurance contributions that will help boost net incomes, while teachers and doctors look set to get a pay bump as well. The cabinet counts on increased revenues from better tax collection, while keeping the value added tax at the current 20-percent level, and postponing the plan to add lines to the Bratislava-Trnava traffic-heavy highway.
Fico praised approval of the draft budget, stressing that Slovakia can lean on one of the biggest economic growths in the European Union, reduction of unemployment and the historically low growth in consumer prices.

On October 15, PM Fico’s cabinet sent the draft state budget with a general government deficit of 1.98 percent of gross domestic product to the parliament while the EU will have to clear the plan as well.

Compared to the original draft from August, this draft counts on a deficit lower by almost half a percentage point. This is because the Finance Ministry incorporated into the draft new positive tax projections, as well as changes resulting from the new ESA 2010 methodology.

Based on it, subjects like the National Highway Company, the railway infrastructure administrator Železnice SR, public transport companies in Bratislava, Košice, Banská Bystrica and Žilina, the Emergency Oil Stocks Agency, and Eximbanka, are included into the general government section.

Revenues are planned at €14.193 billion and expenses are budgeted at €16.635 billion, leaving the budget in a deficit of €2.442 billion.

However, the final numbers in next year’s state budget may eventually be different as the budgeted government deficit is well below what Brussels requires from Slovakia, so it is possible that this space will be used to increase some spending.

The Finance Ministry is also waiting for the definitive stance of the European statistics office Eurostat, which should publish later in October a revision of the debt and the deficit according to the new ESA 2010 methodology. Finance Minister Peter Kažimír believes that the result would mean a reduction of the general government debt for 2014 below 55 percent of GDP. Such a result would mean that sanctions from the third zone of the constitutional debt brake, especially the duty to submit the budget without expenditures growing on annualised terms, would be avoided. This would open space for adjusting expenditures during budget discussions in parliament.

Analysts see the estimate concerning tax revenues as stipulated by the 2015 budget proposal as realistic and they also think that budget expenditures could rise. They assess that the government has based the reductions of the deficit mainly on more efficient tax collection.

“We view the estimate concerning budget incomes as realistic, but what remains questionable are the expenditures, which can go up during parliamentary discussion from the proposed budget draft,” Mária Valachyová, analyst with Slovenská Sporiteľňa told TASR. “Consequently, the final version of the budget may be approved with a higher deficit.”

INESS analyst Ján Dinga pointed out that compared with 2013, next year should see incomes from taxes and levies grow by €1.6 billion, but the state deficit is expected to shrink by just one-fourth of this sum.

“The cabinet appears to base the consolidation of public finances on the wallets of taxpayers, while it has failed to present systematic cuts in the expenditures of public administration despite its pledges,” the analyst warned.

The draft budget is based on Slovakia’s GDP growth in 2015 accelerating from 2014’s 2.4 percent to 2.6 percent in 2015. This will be facilitated mainly thanks to continuing improvements on the labour market, which should in turn lead to the stabilisation of household consumption.

Analysts in this respect pointed to a number of risks that could jeopardise budget goals.

“Other data from Europe and Germany haven’t been too encouraging, with some uncertainty with respect to growth predictions for next year,” said Vlachyová. “Even though we, for our part, haven’t changed the country’s economic growth estimate, it would be beneficial to have at hand some reserves and/or measures aimed at curbing expenditures if the prognoses regarding revenue are not met.”

This was echoed by Dinga who claimed that the greatest danger is in macroeconomic growth.
“A downturn in the foreign demand on the part of Germany, or deepening of the Ukrainian crisis could quickly contribute to poorer results,” he said as cited by TASR.

Scientists protest

About 600 SAV workers gathered at SAV premises in Bratislava on October 15 to show their concerns that the cut to the budget by €10.3 million or 16.5 percent compared with 2014 would mean layoffs of 500 mostly scientific workers out of the 3,200 total. The Education Ministry sees the protests as preliminary, as the cabinet approved an additional €8 million for science and research.

Scientists would be able to apply for these funds via grants. But SAV trade unionists warned that this money is not directly for SAV scientific institutions and wages.

Scientists agree with the change in the structure of finances “in order for the share of money for which scientists would compete to increase and the share of institutional money decrease,” Albert Breier from SAV told TASR. “But this should be done slowly and via a targeted reform.”

Finance Minister Kažimír added that SAV is preparing for restructuring, with the result to be better functioning with lower expenditures.

“The key point is to put more money into science, not into the institution itself,” said Kažimír as cited by the Pravda daily.

Students and pensioners should already get the chance to travel free of charge as of November 17 while discounts for workers should increase to 50 percent as of the beginning of 2015. The draft state budget allocates €13 million for this.

“We need to clarify some things within the ministry,” Transport Minister Ján Počiatek said as cited by TASR, but the ministry has also promised to increase the number of dispatched trains in connection with this measure.

The draft budget also counts on reforms to payroll taxes while half a million people with the monthly wage up to the minimum wage of €380 would feel it. Their compulsory health insurance premiums would decrease, increasing their net wage to €339. The state plans to compensate the drop in revenues from compulsory insurance estimated at €141 million through higher state contributions.

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