After the approval of the planned austerity measures package, Slovakia will have the highest ratio of public income to gross domestic product (GDP) in the history of the independent Slovakia next year, with an expected 45.2% of GDP. With a planned deficit exceeding 4% of GDP, this also means that expenditures as a ratio to GDP will reach their highest level in the last 25 years, even if the declared savings are met. The Council for Budgetary Responsibility (RRZ) pointed this out on Tuesday based on current estimates.
"State expenditures have grown so rapidly over the last two decades that they are now approaching 50% of GDP, even though revenues are insufficient to cover them, and this is despite repeated austerity packages that have increased state revenues to a historical maximum," the council warned.
It calculated that compared to 2007, public expenditures have increased by more than 13% of GDP across all areas of public administration. Nearly half (6% of GDP) of this increase, according to the council estimates, is explained by the growth of social transfers, particularly old-age pensions and family benefits. Investments accounted for only about one-fifth of the increase.
"Aside from adopted legislation, the main economic reason for the growth of expenditures as a share of GDP is their rigidity, meaning a weak ability to adapt to current economic developments. While budget revenues naturally react to the economy's performance, the weight of expenditures in times of crisis jumps due to their inflexibility downwards," the council explained, adding that the lower-than-originally-expected post-crisis economic growth causes expenditures to remain at permanently higher levels.
At the same time, periods of favorable growth are not sufficiently used for adopting austerity measures; on the contrary, new spending measures are often adopted, the budgetary council warned. "The low willingness to slow down expenditure growth, at least in good economic times, therefore leads governments to solve high budget deficits mainly by simply and repeatedly increasing tax rates," the council stated.
Source: TASR
