Finance Minister Ladislav Kamenicky (Smer-SD) on Tuesday unveiled the newest austerity measures, or so-called consolidation package. The austerity package for next year will include 22 measures totalling €2.7 billion. The Minister added that savings on state spending could account for almost half of the amount, €1.3 billion.
The result should be a reduction in the general government deficit and a gradual stabilisation of public debt.
The state should save €1.14 billion, for example, by reducing spending on goods and services, scrapping and merging some offices, but also by substantially reducing spending on salaries. Local authorities will also need to save, as their share of income tax revenue will be reduced by €130 million. The state will also save money if it is possible to finance energy price aid from EU funds.
Most of the additional revenue is to be brought into state coffers through a 1-percent increase in the employee health-care levy, namely €358 million. The tax rate on higher earning individuals is set to be increased, with the two existing rates of 19 and 25 percent to be increased to 30 and 35 percent. Constitutional officials will have these rates increased by a further 10 percent. According to the Minister, the state intends to raise more than €200 million in total from this measure.
The value-added tax (VAT) on selected foods with high sugar or salt content will increase from 19 percent to 23 percent, which is expected to channel over €90 million into the budget. Kamenicky plans to raise €54 million from an increase in tax on gambling.
There will also be a change in public holidays, with the public holiday on November 17th to be cancelled permanently and the public holidays on January 6th and May 8th cancelled on a temporary basis. The ban on sales on public holidays is also to be lifted. According to the Finance Minister, the state should obtain a total of €230 million from this measure.
Kamenicky also expects additional revenues from combating tax evasion. A general pardon on penalties for taxes paid in arrears is anticipated to bring in €81 million. The state wants to gain €86 million from limiting the VAT deduction on company cars that are also used for private purposes, while shortening the tax holiday for sole traders from 12 to six months is expected to bring in €119 million.
"For me, this has been the most difficult consolidation package of all the ones I've delivered. Of course, the measures are shrinking in number, it's getting harder and harder. This time, half of the amount is to be cut from state expenditures, and I thank the ministers for taking this on, for communicating with me and going for it," said Kamenicky, adding that he'd like to have an agreement on savings at all ministries by the end of this week.
The Finance Minister noted that the government has also made savings in the past, but this time it is a "huge amount", with the vast majority of spending being mandatory. "If some ministers want to make savings at their ministries and they have a sum that they can't save from laying people off, for example, they'll have to make changes to laws," he stated, adding that the consolidation package itself should come to Parliament as a single legislative proposal via a fast-tracked legislative procedure during the current session.
Reactions to Proposed Austerity Measures
Representatives of the opposition parties responded to the proposed measures saying that the consolidation package will further impoverish ordinary Slovaks.
According to PS, the new package of measures will significantly dampen the economy and threaten to plunge Slovakia into recession; they added that a large part of the measures increases the taxation of economic activity.
PS misses pro-growth measures that would help boost the performance of the economy and bring more money into the state budget. "There's a real threat that Laco Kamenicky and this bunch will drag us into an economic recession, and that means poverty. We already have over a million people in Slovakia, people at risk of poverty, that number is rising in tens of thousands, and that is the result of this government," said PS chair Michal Simecka.
The opposition Christian Democrats (KDH) also criticize the lack of specific measures in savings on the part of the state, as well as the spending of EU funds on energy subsidies.
MP Jozef Hajko (KDH) pointed out that of the announced €1.14 billion to be saved by ministries and offices, €430 million is for energy assistance, which should be paid from EU funds. "The €700 million that the government promises to save on itself is still in the clouds," stressed Hajko. Minister Kamenicky hasn't yet specified specific savings options, but at the press conference he claimed that individual ministries are to deliver specific figures to him by the end of this week.
SaS considers the third consolidation package as proof that the government continues to "live off lies and the exploitation of citizens". Instead of real savings on the part of the state, the financial burden once again falls on people and businesses.
“We expected that the government would finally do its part and cover 100 percent of its share. Instead, 55 percent of the burden is to fall on citizens and businesses, and only 45 percent on the state. Frankly, I fear that even this, Kamenicky will not be able to deliver. Last year, the government appeared together (to present the measures); today, the Minister stood alone. That clearly shows how much this government cares about consolidation – and how seriously they take it. Kamenicky is incapable of delivering results and is ripe for dismissal,” said SaS vice-chair Marian Viskupic.
According to the opposition's 'Slovakia' party, the current government cannot make savings on itself and instead only burdens ordinary people.
“The losers in consolidation number three are sole traders, pensioners, people who have ended up on the street, and those creating wealth for Slovakia,” said MP Julius Jakab.
“On the other hand, the winners are tax fraudsters who will receive amnesties, government members led by the Prime Minister whose salaries will not decrease but increase, and also companies operating in the gambling sector,” Jakab emphasised.
President Peter Pellegrini, who is on a state visit in Japan, stated that he was unpleasantly surprised by the amount of consolidation measures presented by the Finance Minister.
Pellegrini said he hadn't yet had a chance to look at them in detail, but expressed concern that the consolidation will amount to almost €3 billion, which, according to him, implies that something is wrong.
"If I remember correctly, after last year's consolidation, the government and the finance minister claimed that next year we would be facing a consolidation of up to €1 billion. Then it was almost €2 billion and now it is nearly €3 billion. So something is not good," stated Pellegrini, pointing out that we need to pay close attention to the fact that Slovakia's economic growth is starting to decrease significantly.
"I'm worried - and that's why I'll be watching these measures closely - whether they will slow down economic growth even more, which could eventually push Slovakia into recession at an estimated growth of 0.4 percent of GDP. That would be very, very unpleasant," he said.
The Slovak head of state also expressed his regret that there hadn't been a wider expert discussion in connection with the consolidation, also in view of the fact that it is a large amount of money and the austerity measures were presented at the last minute.
The Council for Budget Responsibility (RRZ) stated in response to the third consolidation package that the absence of a detailed specification of expenditure measures makes it impossible to assess the realism of the proposed measures.
“According to data from the Finance Ministry, the size of the package introduced today could preliminarily meet the needs to reduce the deficit to the government’s target of 4.1 percent of GDP. However, based on the published information, the RRZ cannot yet assess the realism of the measures. The expenditure component, which according to the Finance Ministry should reach €1.3 billion, has been left almost entirely unspecified. Concrete measures are necessary to estimate risks. Without energy subsidies, the declared savings on expenditures should amount to €860 million," the RRZ explained.
A significant portion of the presented measures is, according to the RRZ, of a one-off or temporary nature and therefore does not contribute to long-term sustainability. This disproportionately prolongs the consolidation period and increases its scope in the coming years, while also raising the risk of implementation due to so-called consolidation fatigue.
The RRZ emphasised that the economic impact of consolidation measures depends heavily on their structure. Further increases in tax and levy burdens have especially negative effects on future economic growth. While some measures will affect developments only temporarily, others may leave long-term negative consequences.
Source: TASR
