Slovakia may have to limit budget spending

The government has several tools to moderate budget spending and thus consolidate public finances in the event of adverse developments during the year, budget responsibility council RRZ head Ivan Sramko commented on Thursday. According to him, on the revenue side, it may extraordinarily raise some taxes (such a move should be carefully considered as to avoid additional cooling of the economic activity, in our view) or try to increase non-tax revenues, for example by selling assets. However, Sramko considers that it will be very difficult to implement these measures by the end of the year and that they will have a relatively small impact on the economy. Recall that FinMin Ladislav Kamenicky (leftist senior ruling Smer-SD) was negatively surprised by the estimated Q2 GDP growth of only 1.9% y/y (down from 3.7% y/y growth in Q1) and noted that the pace of economic cooling continued in H2, the balanced budget target for this year might be threatened as the budget was planned under the assumption of 4.5% GDP growth. Thus, the minister called on all ministers to start saving. Sramko shares the same opinion saying that the economic cooling as compared to the budget projections poses risks to the general government budget mainly through lower tax revenues and growing expenditures related to the economic cycle such as unemployment benefits, adding that the RRZ has already warned of certain risks — overvalued non-tax revenues, undervalued expenditures of local governments, being embedded in the budget at the time of its approval. Sramko also noted that the government has not been taking note of these recommendations and that these risks were persistent in the draft budgets for years with the better-than-expected fiscal outcome being mainly due tax revenues coming above expectations thanks to the favorable economic developments. According to Sramko, on the expenditure side the government could shift the investments planned for this year to the following years, thus realizing certain savings, but noted that this would have only temporary effect and might worsen public finances in next years, especially if the economic cooling is followed by a new recession. Sramko recalled that according to RRZ latest estimates, the general government might run a deficit of EUR975m or 1.02% of GDP this year vs. the planned zero deficit if no additional measures were taken. The RRZ head also recommended that the adoption of measures that would secure a permanent consolidation measures should be included in the draft budget for 2020 and the triennial fiscal framework that should be submitted to the government in early-October.

Share this post

TOP