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Manifesto lacks concrete measures

The economic sector perceives the government’s programme statement as too vague, lacking ambition and not focusing on the business sector.

(Source: TASR)

Combating unemployment, reduction of the corporate tax rate and postponement of a balanced state budget are in the economic part of the government’s programme statement which the parliament is now discussing.

Vice Prime Minister for Investments Peter Pellegrini introduced the statement, or the manifesto as the document is also called, in parliament on April 18 on behalf of Prime Minister Robert Fico, who remains in hospital due to health problems until the end of the week. It is expected that the parliamentary discussion will last several days, to be followed by a vote of confidence in the form of the government manifesto’s approval.

“It’s especially the fight against unemployment which contains ambitious goals that have been embraced by the new governing coalition,” Prime Minister Robert Fico said on April 13 after the cabinet approved the document and advanced it to parliament. “There is a goal to create 100,000 new jobs and squeeze the unemployment rate under 10 percent. These objectives are ambitious, but also absolutely realistic.”

The programme statement, a result of negotiations between four coalition parties Smer, the Slovak National Party (SNS), Most-Híd and Sieť, is divided into several sections and is aimed at strengthening social and political stability, making responses to the opportunities and disadvantages of the external environment more flexible, smoothly continuing support for the economic, social and environmental development of the country, deepening the economic, social and territorial integrity of Slovakia and strengthening the role of the state and protection of the public interest.

Targeting unemployment

While the unemployment rate was 10.09 percent in February, based on the Central Office of Labour, Social Affairs and Family (ÚPSVaR), the government’s ambition is to reduce the jobless rate to below 10 percent. This may be a challenge as the natural rate of unemployment in Slovakia is estimated at between at 8-8.5 percent, whic means that the currently unemployed contain a large group of long-term unemployed as well as those who are actually unemployable. the government’s plan, among others, is to boost employment and create 100,000 new jobs, for what it sees the current economic conditions as well suitable.

“We are drawing up a new law to deal with a new outline for the arrangement of social enterprises, including positive discrimination in public procurement,” said Labour Minister Ján Richter as cited by the TASR newswire, adding that the state will also focus on other disadvantaged groups – including young people and those living in socially underdeveloped communities. At the same time conditions for receiving social benefits will be made stricter in order to deal with those who are obviously unwilling to work.

When it comes to adopting measures bolstering employment, the government wants to take into account employers’ needs and a growing lack of qualified workers.

While during the Fico’s previous term the minimum wage increased to €405 and Fico repeated several times that his plan is to have the minimum wage in Slovakia as high as €500, now the government states that any moves in this sphere must be preceded by proper discussion with social partners, i.e. representatives of employers and trade unions – the tripartite.

“I do not rule out that if things go the way we have seen in the past two years, the minimum wage might even reach the threshold of €500,” said Richter of the four-year horizon as cited by TASR.

Lower corporate tax

The government promises in its programme statement reduction of the corporate income tax, currently at 22 percent. While in the document it proposes to slash it to 21 percent, the SNS pushes for its reduction during the four-year term to be the lowest in the Visegrad group countries, i.e. to be lower than in Hungary, Poland and the Czech Republic. This means that the corporate tax might be as low as 18 percent.

While the business sector welcomes the reduction, economists point to a high difference that may result between corporate and income taxes. Currently the income tax paid by employees as well as the self-employed is 19 percent, those earning 176.8-fold of the minimum subsistence level, which is now more than €35,000, pay an income tax rate of 25 percent.

Thus, also from the viewpoint of the government’s plan to push down unemployment, it would make more sense to continue in reduction of payroll taxes of low-income employees, the self-employed and people working on short-term work contracts, Peter Goliaš of the Institute for Economic and Social Reforms (INEKO) think tank told the Pravda daily.

The government also plans to scrap the tax licenses, a measure highly criticised by the business sector, but only as of 2018, and increase the cap on flat expenditures, the portion that self-employed people can deduct from their tax base without a need to keep accounting books, extend the special tax now payed by banks also to insurance companies, reduce taxes for farmers and create a new scheme for taxation of real estate based on value.

Transport

Completion of the D1 highway connecting Bratislava with the second biggest city in Slovakia, Košice, has become a kind of mantra in Slovakia and this goal repeats in each programme statement. This is true also for the latest one while now the goal is 2020. Experts do not see this term as realistic.

While the construction of the D1 started already in 1972, the 13-km stretch between Turany and Hubová (between Vrútky and Ružomberok in north-eastern Slovakia) remains to be the biggest problem for completion of the highway. After a landslide in 2013 near Šútovo the state is reconsidering the final route, while a five-km tunnel Korbeľka is in question too. Its construction would postpone completion of the highway far beyond 2020, the Sme daily wrote.

The government also wants to connect Slovakia by air with the most important hubs in Europe. It wants to do this by creation of a new national air carrier that should also connect Bratislava with regional airports. While all so-far national carriers have gone bankrupt in Slovakia, for now any concrete plans are not known. State support, in case it is not in line with the principles of the European Union, will be a problem.  

“Currently we are at the beginning of the whole process; we will introduce details in this field after the project is in process,” said Transport Minister Roman Brecely (Sieť) as cited by Sme.

Other changes pondered in the programme statement include possible re-introduction of state IC trains on the Bratislava-Košice route and keeping free trains for children, students and pensioners.

While the programme statement does not set it explicitly, the government has already voiced its plans to finally adopt a brand new construction law. The previous Fico cabinet failed to do so after more than three years of preparation.

A balanced budget will come later

While the previous Fico government planned the balanced state budget already for 2018, the new government postponed this goal to 2020. Economists and other experts see this missed opportunity given the current positive economic development in Slovakia.

“It [balanced budget] is only being put off,” economist Vladimír Baláž from the Institute for Forecasting of the Slovak Academy of Sciences told Sme. “In two years. In two years. I do not see this goal even now very realistically.”

Baláž fails to see measures with which the government wants to achieve a balanced budget when the programme statement contains several measures increasing its expenditures, for example higher pensions, and reducing its revenues, for example the lower corporate tax.

Goliaš of INEKO sees the inability to achieve a balanced budget as a consequence of irresponsible governance since 2014 when, in spite of the positive development of the economy, the revitalisation of public finances halted in Slovakia, Sme wrote.

One of ways the government had at disposal for raising more revenues was cancelation of some state holidays, when one such day can fetch Slovakia 0.5-0.8 percent of GDP. But such a possibility was omitted from the programme statement.

The government also plans to push for a change in the law about the debt brake in order it can spend more, while Baláž believes that when the money is used sensibly, for example for the reform of education of heath care, this will be well-used money.

The Best of All Possible Worlds

Elements from the initiative by Martin Filko, who drowned after his canoe capsized on the Danube River; The Best of All Possible Worlds - Value for Money in Slovak Public Policies, have become parts of the programme statement.

Filko, who elaborated the initiative with Štefan Kišš and Ľudovít Ódor, introduced it shortly after the March 5 elections in order for politicians to get inspired by it for the next term. In the 76-page document they explain how the way of thinking of the state should change and that politicians should not decide subjectively but on the basis of results of analyses in order “the best benefit for citizens, i.e. the best ways of obtaining and spending public finances or regulation of behaviour of people and firms is being sought”.

Now, based on Filko’s proposal, analytical teams at ministries, the Cabinet Office as well as the Supreme Audit Office should be empowered, ensuring that decisions about usage of public finances are based on figures. The government wants to publish methodology, base data and the results of analyses. Analysts should firstly start with analysing expenditures related to health care, education and IT.

“We have drawings, but we do not know whether the plane will fly,” Finance Minister Peter Kažimír, under whose ministry Filko’s think tank Financial Policy Institute (IFP) operates, said on April 13. “Our main designer and testing pilot died, thus everything is upon us. Each activity is about people and the question is with what people we will manage to materialise this idea.”  

New anti-shell law

The government also promises a more effective law against shell companies that will pertain to all public resources and prevent possibility to provide undue advantages to bearers of public power.

Earlier in April Radoslav Procházka, the head of Sieť, one of four coalition parties, conditioned further operation of the coalition cabinet with exclusion of shell companies from public procurement.

“If the cabinet includes any commitment in its cabinet manifesto, it will vote for meeting this commitment,” Procházka said during a radio discussion programme of the public RTVS on April 9. “Otherwise, it will deprive the cabinet of the right to exist.”

The law to be adopted should be based on the bill drafted by Miroslav Beblavý, former member of Sieť but now an independent MP, and Lucia Žitňanská (Most-Híd), the Justice Minister in the coalition cabinet.

Beblavý noted that the anti-shell law is included into the cabinet manifesto in a 75-percent form as originally pushed through by Sieť.

“The key question of enforceability is approached only generally and simultaneously there is nothing said about excluding shell companies from fields related to bankruptcy and restructuring proceedings or bank regulation as Sieť had proposed in its [pre-election] programme based on cases of Váhostav and J&T,” said Beblavý as cited by the SITA newswire.

Slovakia already has an anti-shell law, but some see it is not effective enough. Based on the amended law on public procurement parliament adopted last September there was launched a register of final beneficiaries, i.e. real owners of companies participating in public procurement. The then-opposition criticised the bill as imperfect and required that the register pertains also to companies linked to spending of public finances not only public procurement.

Business sector is sceptical

The business sector is rather disappointed by the four-year plan when, for example, the Slovak Trade and Industry Chamber (SOPK) sees it as too vague and containing too few specific measures, while most of real issues are only suggested for debate, without any proper commitment of planning to introduce them.

For example, the programme statement lacks any measures in support of exports and specific moves to reduce bureaucracy, SOPK chairman Peter Mihók wrote in a press release. Meanwhile, innovation policies only focus on medium-sized companies linked to the automotive and electronic industries, which are both dominated by foreign investors.

“There is no indication that the structure of Slovak industry should be diversified,” Mihók wrote. “An outline for the role of the Economy Ministry in drawing up economic strategies and business activities on the internal EU market is also absent. So, the issue of Slovakia’s economic competitiveness has received only marginal attention in the programme statement.”

He also points out that the document does not deal with boosting the quality of education and linking it to the needs of the labour market.

The Business Alliance of Slovakia (PAS) also sees the programme statement as relatively general containing many strong statements, few practical measures and it also focuses minimally on the business environment.

“The government is speaking about continuity; it plans to ‘continue’ in support for economic development’; but entrepreneurs experienced worsening of the business sector, corruption, judiciary, an increase in red tape during the previous term and thus if this were continued, we should have to fear the future,” said Peter Kremský, executive director of PAS as cited by SITA.

Kremský regrets postponement of the balanced budget and also sees plans in reduction of the jobless rate and creation of new jobs as lacking ambition given the current economic growth. He welcomes scrapping of tax licenses, but would prefer this happens earlier than in 2018, reduction of the corporate tax which he would like to see it fall to 17 percent, the fight against corruption, development of regions, defining the strategy of the economic policy, preparation of the law on SMEs, support of modern industry, R&D or digitalisation of the public administration.

“Let's hope that it will not remain just talk as it often happened during the last four years,” said Kremský.

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