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The Fiscal Council: The Government Is Not Doing So Good In Terms Of Budgetary Planning

Budgetary planning remains flawed, the Fiscal Council of the Republic of Slovenia believes. Some measures are reportedly inappropriately allocated as intervention measures, while the impact of discretionary measures is insufficiently assessed.

The draft amendment of the budget, which is the result of a reorganisation of government ranks and a reallocation of resources between ministries, foresees a deficit of 2.9 billion euros (4.5% of GDP), while on the other hand, the adopted budget projects it at 3.3 billion euros. The lower deficit forecast is mainly due to lower expenditure, which is linked to the rising prices, both because of new measures that have been taken into account and because of the more appropriate projections for certain items. The shortcomings of the latter were already pointed out by the Fiscal Council last autumn. However, the Fiscal Council has recently said: “Nevertheless, budgetary planning remains flawed, due to inappropriate classification of measures as interventionist, insufficient assessment of the impact of discretionary measures, systematic under- or overestimation of individual revenue and expenditure categories, and uncoordinated processes in the preparation of budget documents,” the Slovenian Press Agency reports.

The Fiscal Council considers it inappropriate that the government has included over 60 million investments in tourism infrastructure among the intervention measures planned to mitigate the effects of the healthcare crisis. In regards to the assessment of individual revenue and expenditure categories, the Fiscal Council believes that, in addition to the traditionally overestimated projections of revenue from EU funds and expenditure earmarked for investment, the proposal for a rebalancing is notable for the projection of a very low transfer to public institutions for goods and services. The Fiscal Council also pointed out, with regard to the preparation of the budget documentation, that the draft Stability Programme was produced only a fortnight before the budget rebalancing, which represents the largest government spending. The 2.2 percentage points of GDP increase in the deficit compared to last year is purely due to the reinforced deficit “clean-up” (ignoring the measures resulting from the Covid-19 epidemic and the rising prices), assuming a reduction in the revenue-to-GDP ratio and a future reinforcement of the high level of investment activity already won. Of these intervention measures, out of a deficit of 4.5 percent of GDP, measures in the area of the rising prices are projected to reach 1.7 percent of GDP, and 0.6 percent of GDP due to the epidemic. The “cleaned” deficit is projected at 2.3 percent of GDP.

The 11-percent rise in “net” current consumption is said to be at odds with the European Commission’s recommendations and is also significantly higher this year than the long-term average, driven by high inflation and discretionary measures. In addition, 887 million euros are expected to be spent this year to alleviate the consequences of the rising prices. Of this, 318 million euros are to be earmarked for economic aid to mitigate the effects of the energy crisis (under the Act Determining the Aid to the Economy to Mitigate the Consequence of the Energy Crisis) and 22 million euros under the Act Determining the Aid to the Economy Due to High Electricity and Natural Gas Prices, as well as 20 million euros for families with children, allocated as a hardship allowance due to the rising prices. The reserve is expected to amount to 503 million euros. However, as the government estimates that 296 million euros will be paid to electricity and natural gas suppliers as compensation linked to the price adjustments, the actual reserve (according to the Fiscal Council) is around 200 million euros. According to the draft amendment of the budget that is before the National Assembly, revenues, at 13.1 billion euros, will be 233 million euros lower than planned in the current budget, while expenditure is expected to fall by 609 million euros to a total of just under 16.1 billion euros.

Domen Mezeg

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