Slowing tax revenue forces Slovakia to rewrite 2013 budget

By bne IntelliNews November 28, 2012

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Bratislava will be forced to rewrite its 2013 budget, said the Slovak finance minister as he warned yet again on November 27 that lower-than-expected tax revenue poses a "serious threat" to the government's hopes of avoiding deep spending cuts.

Despite outperforming most of the EU, with growth forecast at around 2.5% for the year, Slovakia's slowing economy will cut tax receipts this year by €276m, and a further €250m in 2013, Peter Kazimir told a news conference, according to Bloomberg. The government will trim spending to remain "as close as possible" to the original 2012 deficit target of 4.6%, he added.

Most analysts expect the economy to slow to 2% growth next year, as expansion of car manufacturing - which occupies the driving seat - slows. Meanwhile, on taking office in April, the left-leaning Smer government pledged to stick to the previous administration's ambitious fiscal targets. Many have been warning for some time that a plan to quash the deficit to below 3% in 2013 is unrealistic.

Of the 2012 deficit, Kazimir warned there is a risk it could rise to just above 5%, before stressing "[w]e are not giving it up, there is still a chance for meeting" the budget goal. "We still hope to prepare a 2013 budget with a deficit below the EU's limit without the need for more measures," he added. "We have a buffer."

However, the government will now withdraw the 2013 budget - which targets a shortfall of 2.94% - from parliament and resubmit it next month, the finance minister admitted.

Reflecting Prime Minister Robert Fico's election pledges to his blue collar electorate, the major measures unveiled by the government in its bid to hit those targets have remained confined to revenue raising - mainly through hiking taxes on companies and high earners. Analysts have been fretting that leaves the plan heavily exposed to slowing economic growth.

That scenario quickly became apparent, and Kazimir and Fico have been battling for months to find some extra leverage for the budget. The finance minister has made regular appearances before the press to discuss the situation. During his last show in late September he said that 2012 revenue was €209m behind schedule, and that next year looked set for a €233m shortfall.

Yet again, Kazimir insisted back then that the government will achieve its targets "at any price". However, there's little space for significant spending cuts for the populist Fico, with the previous, centre-right government having made deep cutbacks across the board. Despite ongoing difficulties with employment, Bratislava has already ordered a freeze on local administration budgets, but it is wary of provoking its core electorate with social and pension freezes.

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