Gov’t Spending Grew Too Fast, RRZ Suggests Launching Correction Mechanism

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RRZ Chairman Ivan Sramko (photo by TASR)

Bratislava, July 22 (TASR) – Last year’s government spending grew faster than permitted by the spending rule, stated the Budgetary Responsibility Council (RRZ), stressing a need to trigger a correction mechanism in order to move the general government budget back towards balance.

However, the RRZ differs in this opinion from the Finance Ministry that is talking about a negligible divergence in heading towards a balanced budget.

The general government budget should be balanced or end in a surplus under the General Government Budgetary Rules Act. The balanced budget rule is based on a medium-term objective, namely a structural balance, which Slovakia’s public finances should fulfil, or approach quickly.

According to the RRZ, a balanced budget won’t be achieved in 2018. After assessing the progress towards a balanced budget, a significant deviation occurred in 2018 prompting the need to launch a correction mechanism. “The significant deviation indicates that if the rule had been observed, the balanced budget might have been achieved as soon as in 2018, one year sooner than projected by the Government. The reason is that the Government used unexpected tax income and a drop in interest costs for faster growth in expenditure, thereby significantly overstepping the budgetary rule,” stated RRZ Chairman Ivan Sramko.

Meanwhile, the Finance Ministry states in its assessment only a negligible deflection from the balanced budget rule and, therefore, it doesn’t see a need to launch a correction mechanism. In the RRZ’s opinion, the ministry’s assessment contains inaccuracies resulting from the fact that the ministry failed to translate updated macroeconomic indicators into the estimate of the impact of better value added tax (VAT) collection in 2015 to 2017 and it did not proceed consistently in the case of the estimated impact of a deductible item.

“Elimination of the inaccuracies would lead to a significant deviation in the budgetary spending rule already in the basic assessment. In such a situation, a significant deviation could have occurred even in the Finance Ministry’s overall assessment, with the recommendation to start the correction mechanism,” said Sramko.

Achieving the budgetary target in 2019 would mean meeting the balanced budget rule. According to the Budgetary Council, the existence of significant risks in terms of development of the general government balance in 2019 urges the need to take corrective measures as soon as this year. “Given the significant deviation identified, the Government should pass a binding correction plan in order to meet the medium-term budgetary objective of a structural deficit equalling 0.5 percent of GDP in 2020 at the latest,” said Sramko.