Draft budget curtails deficit below 2 percent

THE BUDGET deficit should continue decreasing in following three years, according to the first public administration budget draft introduced by the Finance Ministry on July 23.

Finance Minister Peter KažimírFinance Minister Peter Kažimír (Source: TASR)

While the government claims it continues consolidating the public finances, the opposition offers a rather critical view arguing the ruling Smer party will use it as part of the pre-election campaign.

Economic analysts consider the goals realistic, but point out that the deficit and the state debt will drop mostly due to the steps of the European Central Bank (ECB), particularly the quantitative easing.

“When preparing the public administration budget draft we took into consideration also the measures arising from the government’s social packages, which impacts the limits of respective budget chapters and public administration bodies,” the ministry wrote in the press release.

Both deficit, debt shrink

The draft predicts that total expenditures should reach €31.8 billion in 2016, with revenues projected at €30.2 billion. As far as 2015 is concerned, total expenditures are expected to be lower than budgeted by €770 million, while revenues are anticipated to be lower by €449.8 million, the TASR newswire wrote.

The ministry also expects the budgetary deficit to shrink to €1.58 billion next year, which is a decrease from the budgeted figure by €320.2 million.

The public administration deficit shall thus represent 1.93 percent of GDP next year, the SITA newswire wrote, with the prospect of decreasing to 0.88 percent of GDP in 2017 and to 0.53 percent of GDP by 2018. This year, the debt should end at 53 percent of GDP. If all goals are met, the debt-to-GDP ratio should fall under 50 percent of GDP by 2018.

The ministry expects public debt should fall from 53 percent of GDP this year to 52.1 percent in 2016, with the prospect of its further reduction to 50 percent of GDP in 2018. To achieve this goal, the government wants to use €411 million received from people who left the second, private pension pillar. It also wants to use €800 million it will obtain from the sale of its shares in Slovak Telekom, the Sme daily wrote.

The economy should grow at 3.7 percent next year, according to the ministry plans. As a result, the employment is projected to grow at 0.8 percent, with the prospect of new jobs being created in all economic sectors. The nominal wages should increase by more than 1 percentage point compared to 2015 to 3.6 percent.

The ministry expects the average inflation in 2016 at 1.3 percent.

Opposition slams budget

The opposition parties are critical over the first budget draft, with the Christian Democratic Movement (KDH) calling it the pre-election camouflage.

“The government tries to create the impression that it reduces public debt,” said KDH chair Ján Figeľ, as quoted by TASR, adding that in fact the debt will increase by €1 billion.

Also Freedom and Solidarity (SaS) claims that the ruling Smer does not do enough to reduce the deficit and the indebtedness more significantly. Back in 2014 the government worsened the sustainability of public finances, with the deficit increasing more than the average deficit of the eurozone countries, said MP Eugen Jurzyca. He stressed that this happens despite a positive economic climate, as reported by SITA.

Fico’s government only confirms it postpones the solutions of problems and does not care that they grow worse, he added.

Another opposition party, the Slovak Democratic and Christian Union (SDKÚ), criticised the proposed social packages, saying that the government should have invested the money to reduce the debt, to decrease taxes and payroll taxes or to boost knowledge economy.

“Fico’s government threw away every chance to shrink its expenses and invest into future,” SDKÚ chair Pavol Frešo said, as quoted by SITA.

Analysts respond

Economic analysts however consider the plans realistic. The expected economic growth and better macroeconomic prognosis should result in higher tax revenues, several analysts agreed, adding, however, that the government's goals concerning public deficit could have been even more ambitious, TASR wrote.

VÚB bank analysts pointed out that the current 2016 deficit at 1.93 percent of GDP is higher than the one projected last year. At the time the ministry projected 1.21 percent.

“In fact, the new projections see the path to balanced budget adjourned farther into the future,” the analysts claimed in the memo. “The less ambitious and drawn out path to the balanced budget reflect reflects last year’s shift in fiscal stance to expansionary and also less ambitious consolidation path in the year ahead, which is an election year.”

Several analysts agreed that the government reduces the public debt only slowly. The projected plan to decrease it below 50 percent of GDP should be mostly the result of ECB measures.

“The ECB significantly helps the government to refinance the debt,” ČSOB analyst Marek Gábriš told TASR. “Also for this reason there is no threat of bigger destabilisation of the public finances. Moreover, Slovakia’s debt is relatively lower when compared with other countries.”

Among the risks to the budget aims are mostly macroeconomic factors, like the continuing geopolitical tension between Russia and Ukraine and further development in the eurozone, Slovenská Sporiteľňa analyst Katarína Muchová wrote in a memo.

“There is also certain risk arising from potential correction of EU funds,” she added.

Most ministries to receive less

The Finance Ministry’s plan to cut state expenses will also reflect in the ministry budgets. Only five of 13 departments will receive more money than they did this year. The Justice Ministry should see the biggest increase in its budget this year as it should obtain €346.52 million, up by €36 million or 11.56 percent compared to this year.

The budget of the Defence Ministry should also increase, by €53.8 million or 6.75 percent to €850.57 million. The Culture Ministry should receive €202.40 million, up by €10.48 million or 5.46 percent. The Health Ministry should see its budget increase by €51.33 million or 3.65 percent to €1.458 billion, while the Interior Ministry should receive €2.102 billion, up by €7.57 million or 0.36 percent.

On the other hand, the Environment Ministry will see the biggest drop in its budget. It should receive only €137.18 million, down by €540 million or 79.75 percent compared to this year.

Also the Economy Ministry should see its budget shrink by €106 million or 35.53 percent to €192.28 million. The Education Ministry should receive €1.218 billion, down by €274.5 million or 18.39 percent, while the Foreign Affairs Ministry is expected to use €103.25 million, which is by €20.6 million or 16.62 percent.

The Agriculture Ministry’s budget should shrink by €132.1 million or 11.11 percent to €1.057 billion, while the Labour Ministry should receive €2.147 billion, down by €100.6 million or 4.48 percent, and the Transport Ministry should get €2 billion, which is by €90.4 million or 4.32 percent less than this year.

The Finance Ministry should also have lower budget. It should receive €400.63 million, down by €11.2 million or 2.72 percent.

Environment Ministry to use EU funds

The reason for such a high drop in the Environment Ministry budget is that it should mostly use the EU funds from the previous programming period that should be drawn by the end of this year. The EU money, together with the sum the country needs to add, comprise of €640 million. In previous years the sum was about one half lower, Sme reported.

The ministry claims that it called for submitting the projects already in 2008, but there were problems with public competitions.

“The need to correct the competition documents, abolishing and repeating the competitions resulted in prolonging the public procurement and accumulation of funds allocated for the projects until 2015,” ministry spokesman Michal Cákoci told Sme.

Teachers dissatisfied

Teachers, who expected higher increase in salaries, are also critical of the draft budget. The government currently proposes to raise their salaries by 1.3 percent, the same amount as for the other public administration employees. This means that the salary of first time teacher, which amounts to some €600 per month, will rise by about €8 monthly, the Pravda daily reported.

“We will do everything to hike the salaries of teachers also this year,” Education Ministry spokesperson Beáta Dupaľová Ksenzsighová told Pravda.

The ministry wants to raise the tariff salaries by 5 percent, which amounts to additional €50 million. The trade unions however do not consider this enough as this would only mean an increase for teachers at primary and secondary schools, and not university teachers and non-teaching employees, Pravda wrote.

On the other hand, the Education Ministry disagrees with the claim that it will receive less money than for 2015. The ministry would only obtain less money from EU funds, and in fact it will have more money at its disposal, said Education Minister Juraj Draxler.

“There will be several negotiations over the final number,” Draxler told Sme. “The priority now is to increase the budget on science and research via the grant system, and also to increase the salaries in the education sector.”

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