Despite record taxes and consequently record budget revenue, we have once again received the unpleasant news that the budget deficit, according to the Fiscal Council’s calculations, amounted to 800 million euros, which is 750 million euros more than in the same period last year, reports the Slovenian Press Agency (STA).
The budget is running a deficit despite the fact that taxpayers have paid more into the fiscus than at any other time in history – in fact, state budget revenues grew by 0.6 percent in the first half of the year and stood at 6.9 billion euros. However, even though we managed to fill the budget even more, the government managed to empty it – namely, expenditure was 7.7 billion euros – up by 11.5 percent.
The Fiscal Council explains the deficit by the slowdown in revenue dynamics compared to the same period last year, which is mostly linked to the moderation in economic activity, which is, at least for the time being, lower than forecast. They add that “consumption growth remains relatively high and broad-based, in line with expectations, mainly due to higher labour costs in the context of the change in the wage system.”
On the revenue side, the Fiscal Council estimates that the main deviation from the planned level is due to lower inflows of European Union funds, which on the expenditure side is mainly reflected in a lag in investment spending. In this context, the Fiscal Council warns that additional caution will be needed in the autumn preparation of the budgets for the next two years, both in the estimation of revenue and in the planning of expenditure. “The autumn preparation of the government budgets for the next two years should: be based on cautious tax revenue planning and a realistic projection of European funds, given the many uncertainties about macroeconomic developments; and avoid overestimating expenditure, which, among other things, allows for inefficient spending, in particular investment spending, which should be planned with more certainty and a medium-term orientation.”
Fiscal Council warns
The Fiscal Council has diplomatically urged the authorities to plan better fiscal policy in the future and to start saving. They point out that public finance planners should “address the long-term risks to public finances, not exacerbate them. The adoption of the pension reform would significantly reduce these risks. At the same time, decision-makers should refrain from adopting measures that are palatable in the pre-election period but have negative fiscal consequences in the medium term.”
They also drew attention to the planned increase in defence spending, pointing out that it is essential to clearly define the purpose and scope of the additional spending and to identify measures to prevent a deterioration in fiscal sustainability.
In addition, they also warned that further reduction of government debt is also crucial for the long-term sustainability of public finances.
Budget has been set for a period of abundance, not for the coming crisis
The Fiscal Council has been warning the Minister of Finance, Klemen Boštjančič, for several quarters in a row that the budget is set in a highly pro-cyclical way – that means, unlike other European governments, the government is not preparing for the hard times ahead, but behaving as if we are still in the midst of a boom and a flood of cheaply-printed money. Expenditure is keeping pace with, and even exceeding, the ever-increasing inflows into the budget, which are the result of ever-higher taxes. What will happen when the economy falters and is no longer able to fill the greedy state budget at the same rate?
The latest news on economic growth in Slovenia is the OECD’s forecast of a slowdown in economic growth, while it has maintained its growth forecast for the world economy. Slovenia is therefore economically going against global trends.
What will happen, then, when Slovenia’s pro-cyclical budget is confronted with the economic reality of lower incomes? There are only two possible scenarios: harsh austerity on the level of Greece or harsh additional taxation of the middle class and entrepreneurship.
Since economic cycles run on three to five-year cycles, we will only be faced with the consequences of the decisions of the Golob government years from now, when a completely different government will be making cuts and incurring the wrath of the people.
I. K.
