The European Commission is sceptical of Slovakia's budget

It forecasts Slovakia’s economic expansion to give way to slower growth.

The Slovak government, illustrative stock photoThe Slovak government, illustrative stock photo (Source: TASR)

Slovakia’s general government deficit should amount to 1.2 percent in 2020. This will mostly be the result of the introduction of government fiscal measures decreasing the tax burden and introducing minimum pensions, according to the Autumn 2019 Economic Forecast issued by the European Commission.

The Peter Pellegrini government, however, expects it to rise to only 0.49 percent of GDP, as stems from a draft sent to Brussels. As a result, the EC has told the cabinet that it is sceptical of the government's plans to reduce the deficit, the Denník N daily reported.

The EC based its prediction on the fact that the Slovak economy will rise by only 2.7 percent of GDP this year, and by 2.6 percent in 2020. This is a slightly higher growth estimate than the Slovak government's, which predicts the economy will rise by 2.4 percent this year, and by 2.3 percent the year after, Denník N wrote.

No warning yet

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The EC took into consideration in its autumn forecast the impact of several governmental measures, such as the reduction of income taxes for corporate entities and the self-employed to 15 percent, the increase in the non-taxed part of the tax base, as well as the extension of a group of foodstuffs with a reduced, 10-percent VAT.

Brussels is expected to publish its opinion on the 2020 draft budget soon. The government has already improved the proposal by adopting an increase in the bank levy, which should increase the budget incomes by a further €140 million next year, Denník N wrote.

The budget also takes into account higher taxes on cigarettes and tobacco products, but it is not clear yet whether it will be passed by the parliament.

“The EC has noticed that the tax from tobacco products is included in the draft budget,” Finance Minister Ladislav Kamenický (Smer) said, as quoted by Denník N. “We have to compensate it somehow.”

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The National Bank of Slovakia (NBS) expects the deficit in 2020 to amount to 1.5 percent of GDP in 2020, according to the daily.

The EC has already sent a warning to some countries that submitted their draft budgets in October. Slovakia has not been part of the group yet, Denník N wrote.

Slower growth predicted

The EC also predicts in its forecast that Slovakia’s brisk economic expansion should give way to slower growth from 2019 onwards.

After Slovakia’s economy expanded by 4 percent in 2018, real GDP growth is forecast to slow markedly to 2.7 percent in 2019 and then to remain at similar rates of 2.6 percent in 2020 and 2.7 percent in 2021, according to the EC.

“Though decelerating, domestic demand is set to drive growth, with private consumption backed by buoyant real wage increases,” the EC wrote.

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Investment is forecast to normalise after sluggish growth in the first half of 2019, while net trade is forecast to weigh on growth in 2019, and then to contribute positively in subsequent years.

Consumer price inflation is expected to be fuelled by wage increases and robust private demand, but at a moderate pace over the forecast period.

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