Govt Budget Plans for 2020-2022 Are Acceptable Under Fiscal Rule, But Risks Remain

By , 19 Apr 2019, 11:50 AM Politics
Govt Budget Plans for 2020-2022 Are Acceptable Under Fiscal Rule, But Risks Remain Montage: JL Flanner

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STA, 18 April 2019 - The budgets planned for 2020-2022 are on the edge of what is still acceptable under the fiscal rule, the Fiscal Council told the press on Thursday. While the 2019 budget violates the fiscal rule, the blueprint of 2020-2022 general government sector budgets adopted last week "walk the edge," according to council chair Davorin Kračun.

The blueprint plans budget revenue to exceed expenditure by 1% of GDP in 2020. In the two years after that the surplus is to increase even more, according to the blueprints presented by the government just over a week ago.

"The projections in these documents are in line with the fiscal rule but are close to the border values and prone to certain risks," Kračun said, adding that "projections are hard to realise".

Key risks listed by the council include macroeconomic risks and a slower-than-expected growth in revenue. "We cannot predict global events and we must be aware that these risks exist and that they can endanger fiscal plans," said Kračun.

He also warned that measures planned by the government as regards the pension and fiscal systems remain undefined. "The measures are listed, but undefined, and we cannot make conclusions about their fiscal effects."

The Fiscal Council wants to see draft pension and tax reforms and relevant projections as soon as possible. Council member Tomaž Perše is especially worried about the cost of population ageing.

Unless Slovenia starts to tackle the issue, the cost of ageing could increase by 2% of GDP in a decade, according to Perše, who is in charge of projections. Moreover, if the cost is to be covered solely by borrowing the country's debt would increase by 10 percentage points, he added.

Kračun is also worried about pressure from interest groups. "The government is weak but interest groups are strong and this may spoil the fiscal projections," said Kračun, pointing to the public sector pay system, saying it basically fell apart as the strongest interest groups got what they wanted.

The Fiscal Council thus advises the government to tread cautiously. "There will be no problems if economic growth is high. But if it slows down, problems can arise," said Perše.

The Institute of Economic Analysis and Development (IMAD) projects 3% growth for Slovenia next year but only 0.5 percentage points less would lead to public finance deficit, Perše said.

If growth were at 2%, public finance deficit would amount to 1% of GDP, while 1.5% expansion of economy would cause a 2% deficit, he added.

Kračun moreover commented on the constitutional review of the 2019 budget request by the opposition Democrats (SDS), saying it would be good that the Constitutional Court said what are the consequences of violating the fiscal rule act.

The court is expected to decide today whether it will review the issue or not.

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