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Budgetary deficit decreasing, but too slowly

The government sent the draft general government budget with a balanced budget for 2020 to parliament

Finance Minister Peter Kažimír(Source: TASR)

"We keep on consolidating public finances,” said Finance Minister Peter Kažimír on October 11 after the government passed the most significant law of the year – the general government budget for 2018-2020, including the 2018 state budget. The government again postponed the goal of a balanced budget, this time to 2020. Analysts see social and other measures pursued by ruling parties behind the slower reduction of the budget deficit. These increase expenditures and reduce revenues, even though robust economic growth compensates for a portion of the created gap.

In 2018 the general government deficit is projected to fall, for the first time in Slovakia’s history, below 1 percent of GDP, to 0.83 percent. The year after it should be 0.1 percent of GDP and in 2020, the year when Slovakia will hold general elections, the ministry is planning a balanced budget. Originally Robert Fico’s government had planned to achieve a balanced budget in 2018.

“We consider postponing the creation of a balanced budget to be a negative feature of the budget, especially in the context that we are currently living in good times, the economy is performing well and growing strongly and revenues are increasing,” said Ivan Šramko, head of the Council for Budgetary Responsibility (RZZ), as cited by the TASR newswire.

However, the higher revenues are not used primarily for the consolidation of public finances but other goals.

“This is the fact postponing the creation of a balanced budget, which should be the goal of this government,” said Šramko.

The draft state budget is taking into consideration the latest social package. It contains such measures like the introduction of the 13th and 14th salary, the increase of the minimum wage, the exempting of working pensioners from the payment of income taxes, support for those commuting to work, an increase in bonuses for night and weekend work, and more. These measures will increase budgetary expenditures and reduced revenues. Its price tag is about €500 million, according to the Trend weekly.

Read also:Measures from social package are not specified yet

Minister Kažimír said that the draft state budget was based on the political agreement of all coalition parties, when measures only within the Labour Ministry accounted for €140 million. He recalled that the corporate tax was slashed by 1 percentage point as of 2017 and that tax licenses will be cancelled. These measures reduce revenues.

Zdenko Štefanides, chief economist in VÚB banka, points out that compared to original plans from the government’s Stability Programme, budgetary revenues are projected to almost mimic last year’s plans, but expenditures are projected to be €333 million higher. As a consequence, the projected deficit is not 0.5 percent of GDP but 0.83 percent of GDP. More money should go on wages and social payments while capital investments will be cut.

“Simply said, we will spend more money and invest less,” said Štefanides as cited by TASR, adding that the public sector is spending more in the long run than it originally intended. “Only thanks to the thriving economy bringing higher revenues into the public sector is the deficit not increasing but decreasing. Not a lack of revenues but excessive consumption is the reason why we still don’t have a balanced budget.”

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