The Ministry of Finance of the Slovak Republic (the Ministry) published an evaluation of compliance with the balanced budget rule for 2018 on 29 November 2019, reporting a significant deviation from the required adjustment path towards the medium-term budgetary objective.
The Council for Budget Responsibility (CBR) came to the same conclusion in its evaluation report published on 16 December 2019. In line with the Act on the General Government Budgetary Rules, the Ministry is obliged to propose to the government triggering a correction mechanism to ensure that a structural deficit not exceeding 0.5 % of GDP is achieved in a sustainable manner by applying a binding expenditure ceiling.
On 12 December 2019, the Ministry published a correction mechanism proposal, recommending that the Slovak government approves an expenditure ceiling for 2020 at a level of the general government budget, which had already been approved by the parliament. According to the Ministry, the proposed limit should ensure that a structural deficit of 0.5 % of GDP is achieved.
Having assessed the submitted proposal, the CBR concluded the following:
- The correction mechanism proposal meets all formal requirements under the provisions of the Budgetary Rules Act. Complying with the revenues and expenditures budgeted for 2020 while achieving the general government deficit of 0.49 % of GDP at the same time would result in meeting the medium-term objective in 2020.
- The planned expenditure growth rate is higher than that set under the expenditure benchmark, indicating that achieving the medium-term objective in 2020 might not be sustainable in the long term.Meeting the budgetary objective is affected by items, which are not taken into account while assessing the adjustment path towards sustainable medium-term objective; those items are being adjusted for in the case of the expenditure benchmark. They include, in particular, a higher planned growth rate in revenues compared to the potential economic growth (arising from overestimated non-tax revenues), a neutral impact of additional revenues from the bank levy in terms of net worth, savings in debt interest payments, and a decline in investments below the four-year average level. In order to ensure the full compliance with the balanced budget rule, the aforementioned factors should be allowed for in the level of the overall ceiling or in the structure of expenditures within the set ceiling.
- In its evaluation report on the 2020-2022 budget proposal, the CBR notes that the budget proposal includes a balance-related risks amounting to EUR 1,290 million in 2020. Therefore, the CBR considers it necessary to point out that additional measures will have to be implemented in order to comply with the overall expenditure ceiling, as well as to achieve the budgetary objective. A significant share of the risks arises from the expenditures ensuing from the applicable legislation (for example, social benefits and transfers) and/or falls outside the government’s direct control (e.g., local governments).
- In order to ensure compliance with the expenditure ceiling set, the CBR recommends that the government should shortly re-evaluate the structure of expenditures in the approved budget. For the purposes of the continuous monitoring of compliance with the expenditure benchmark and for adopting potential corrective measures, it would be advisable to ensure that the information about local governments’ expenditures is available in regular monthly intervals the way such data are available for other general government entities.