Caps on public spending will force governments to save for worse times

With the law, Slovakia meets a milestone to reach the first payment for its Recovery Plan.

(Source: Sme)

Slovakia’s governments will have to be more cautious in spending public funds after the parliament passed a new legislation introducing budget expenditure caps on March 16.

This instrument, according to the proposal, is intended to prevent excessive spending during good times and facilitate the creation of reserves for bad times. Slovakia has been awaiting the introduction of spending limits for nearly a decade, with the previous governments failing to pass the due law.

This time around, one motivation for the government of Eduard Heger to finally introduce the limits on spending was that it is required to do so in order for Slovakia to receive the first payment from the EU's Plan of Recovery and Resilience, amounting to some €460 million. The introduction of the spending caps is one of the 14 milestones Slovakia is required to meet to apply for this first payment from the plan.

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The Council of Budget Responsibility (RRZ), the country’s fiscal watchdog, welcomes the introduction of the limits. The council sees the caps as a significant shift towards securing the long-term sustainability of public finances.

“Repeated experience with the management of public finances in Slovakia often shows that either the approved budgets during good times are not ambitious enough, or often in practice the government that proposed them does not stick to them,” said Ján Tóth, head of RRZ, adding that the long-term sustainability of Slovakia’s public finances is in the high risk zone and is the worst among EU countries.

Slovakia has had neither surplus nor a balanced budget during its almost 30-year history.

How the caps will work

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