BRATISLAVA, August 15, (WEBNOVINY) — Director of the Economic Policy Institute (IHP) Frantisek Palko asserts in connection with the first published draft general government budget for 2012 – 2014 that the continued trend of reducing the ratio of the public revenues and expenditures to GDP is unsustainable in the long-term horizon. Based on the draft budget, the revenue-to-GDP ratio should be cut down from this year’s 32.4 percent to 31 percent by 2012 and the expenditure-to-GDP ration should even be slashed from 37.3 percent to 33.8 percent.
“This set fiscal frame of public finances is unsustainable for further budgetary development because without reduction in the volume of law-determined expenditures, a decision on either a lower extent of provided public services or increase on the revenue side of the budget via administrative change increasing tax rates or widening tax assessment bases will have to be made,” assumes Palko. He opines that excise taxes and real estate taxes could be considered when seeking preconditions for macroeconomic stability.
These measures on the revenue side of the budget may be implemented following political discussions on further priorities of the next year’s budget because Finance Minister Ivan Miklos stated no other priorities but transport and education have been incorporated in the budget and financing of other potential priorities will thus have to be secured from additional funds obtained from increased taxes or further expenditure cuts.
Palko, however, casts doubt upon effectiveness of the aforementioned two priorities that have been integrated in the budget. “As for the indicated spending growth in the education sector, it concerns increase in wage expenditures for teachers, which means that it is not an investment in development in this area from the view of rationalization of the system of science and technology financing,” said IHP head. The announced increased spending in road and railway transport is mostly linked to EU funds. Palko underscored in this context that the EU funds drawing pace significantly falls behind projections.
As for other expenditure areas, IHP has pointed out substantial cuts in the budgeted volume of expenditures that may negatively affect not only these areas but also economic growth dynamics. “For example financing of housing subsidies drops about EUR 27 million annually, which is more than 20 percent, while no budgetary expense is projected for the housing stock recovery,” reads the IHP statement.
Palko thinks that the Cabinet has not taken great pains with how the consolidation of public finances will be carried out. The government proceeds with general cuts on the expenditure side, which Palko views as discouraging for the budgetary chapters that are trying to rationalize management of the ministry and its subordinated organizations. “This approach reflects the fact that even this government has not decided to launch an in-depth reform of the central state administration that might imply cancellation of possibly a hundred of now independent budget-subsidized or partly budget-subsidized companies,” claims Palko.
Palko, on the other hand, praised the fact that it is possible, for the first time, to inspect ministries’ individual subordinated organizations including state-controlled companies when budgeting their expenditures, which significantly boosts draft budget’s transparency.
Slovakia should continue with its budgetary consolidation next year. Cost cuts are part of the first proposal of the draft state budget for next year published by the Finance Ministry on Thursday. The budget deficit is planned at EUR 3.172 billion, down EUR 637.6 million from the gap approved for this year.
The general government deficit should be cut to 3.8 percent of GDP next year, according to the proposal from the Finance Ministry, which is in compliance with the original plan to consolidate public finances. The department aims to squeeze the general government gap below the Maastricht criterion of 3 percent of GDP already in 2013. The general government deficit is projected at 4.9 percent of GDP in 2011. The gross debt of the general government should amount to EUR 33.441 billion, i.e. 44.8 percent of GDP next year.
SITA