Slovakia admits defeat in avoiding spending cuts

By bne IntelliNews July 30, 2012

Tim Gosling in Prague -

Just a day after parliament approved a hike in taxes on the country's banks and utilities, Slovakia's finance minister admitted on July 27 that with tax income below target, the government's attempts to limit fiscal consolidation to revenue-raising measures is set to fail, and that spending cuts must also be introduced.

"The 2012 budget is now nothing more but a scrap of paper," Finance Minister Peter Kazimir told journalists in Bratislava, according to Bloomberg. "The shortfall in tax revenue is an unpleasant surprise for us and I don't see any other solution but imposing spending caps."

Without additional steps, the budget deficit for 2012 would reach 5.3% of GDP, he warned, compared with a target of 4.6%.

The populist Smer government, formed in April, quickly committed to the previous administration's targets to quash the deficit, with around €1.2bn of fiscal consolidation measures needed in 2012. However, analysts have regularly questioned the fact that the measures have been limited to revenue raising.

Promising to protect the ordinary man in the street from the impact of the Eurozone crisis, the government has been slowly unveiling plans for new taxes. It is still targeting increased levies for high earners and corporations, which would join the windfall tax on utilities passed in the lower house on July 26. An increase to the tax on bank deposits - from 0.2% to 0.4% - will help fill a crisis fund to back the sector.

However, despite the fact that increased investment from carmakers has helped push economic growth above original expectations, tax collection is lagging, Kazimir said. His ministry now expects to collect around €250m less than planned in taxes this year, according to revised projections. He added that government targets - including a 2013 deficit below the EU's 3% threshold - are "unquestionable," and the government will do anything needed to meet them.

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